U.S. stocks were primed for a big downturn long before tariffs emerged as the primary threat on Wall Street, as worrying signs under the surface accumulated for months — despite the major averages still charging toward record highs. The S & P 500 hit an all-time high on Feb. 19, while the Dow Jones Industrial Average and Nasdaq Composite peaked in December. But the number of stocks driving the major indexes to those levels declining. More than half of the S & P 500’s gains for 2024 were powered by the “Magnificent Seven” as investors piled into artificial intelligence bets. “We’ve been in trouble for months and there’s more trouble ahead … the market was deteriorating well before the actual peak, internally, in terms of constituents,” said Carter Worth, founder of Worth Charting. “It was the turmoil below the surface predating the actual peak in the market. … Once again, there was wisdom in price.” .SPX 1Y mountain S & P 500 performance. The magnitude of declines seen among individual stocks has been far greater than the overall market’s decline, according to a Worth Charting analysis. The U.S. stock market was roughly 9.6% from its 52-week high as of March 30, the firm said. Yet at the same time, the median U.S. stock was about 27.7% from its 52-week high and the average stock was 32.3% from its one-year zenith. “You have bifurcation,” Worth said. “You get this huge number of stocks that start rolling over early, while the index is still going up being held out by a few holdouts. And then the holdouts succumb.” High hopes overshadowed signs of froth Investors entered 2025 expecting another year of double-digit earnings growth, as well as broader earnings contributions from names beyond the tech sector. Analysts expected 455 companies in the S & P 500 to post positive earnings growth in 2025, according to LSEG, while only 357 companies in the broad-market index posted year-over-year earnings growth last year. “There was a lot of optimism and a lot of good news priced into stocks at the start of the year. We set ourselves up for a pretty high bar,” LPL chief technical strategist Adam Turnquist said, adding that market leadership has remained fairly lackluster. While exuberance ran strong, strategists were spotlighting signs of market froth for months. Bank of America in December flashed a warning sign on the S & P 500’s valuation , saying its price to book ratio had then topped its previous high from March 2000 during the dotcom bubble. Momentum behind tech and semiconductors also began to fade in the middle of last year, signaling waning enthusiasm on the stocks that are considered “market generals,” Worth said. Although the Magnificent Seven continued to boast a strong performance through the end of 2024, Microsoft is down more than 21% since hitting a July peak. Nvidia’s high last year came in November. It was briefly eclipsed in January, but since then the stock is down 32%. Dow Transports are also down 24% since reaching a November top. A more salient event for Worth occurred at the end of March, when the Russell 3000 ‘s 150-day moving average fell flat for the first time in two years, signaling what he said is now “a structural bear market.” Gold’s warning What’s more, the spike in gold prices this year has continued to signal a risk-off mentality among investors, as gold tends to rally during periods of decline in stocks. Escalating global trade tensions recently pushed bullion above the $3,300 per ounce level for the first time. GLD 1Y mountain SPDR Gold ETF performance. The gold rally has become “hysterical,” Worth said, as the commodity’s monthly RSI, or relative strength index, reading topped 86 this week. Gold has only reached that level four other times since 1975 and has proceeded to post double-digit declines in the following months, he said in a Thursday note. “This is a period of uncertainty. This is a period of geopolitical risk … of prospective stagnation,” Worth said. “That’s not a reason to expand the P/E multiple, to pay more for a stock — it’s a reason to pay less. The fever is broken.” Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles, and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!