There’s a ‘monstrous bull market’ developing under the surface of the S&P 500. This hedge-fund manager tells you where it’s at.

The S&P 500's headline level can mask what is happening beneath it. According to a hedge-fund manager cited in the report, the index may trade in a narrow range because its largest, most heavily weighted constituents are lagging, while a broader bull market builds among the other stocks in the benchmark. In other words, the index's performance is being held back by a handful of mega-cap names even as participation widens elsewhere.

This distinction matters because index-level returns are weighted by market capitalization, so the biggest companies can dominate the direction of the headline number. When leadership broadens, more stocks are contributing to gains, which can signal improving market breadth — a factor investors often watch to gauge whether a rally is durable or narrowly concentrated.

What to watch: whether that broadening continues, and whether the lagging heavyweights eventually catch up or keep capping the index. Breadth measures and equal-weighted versions of the S&P 500 can help illustrate the gap between the average stock and the index itself.