The Mag 7 Ate Your Index

For nearly two years, the S&P 500’s strength has been driven by an unusually small group of mega-cap stocks, leaving most of the market behind and masking historically weak breadth beneath the surface. That dynamic created a massive performance gap, but that trend is starting to shift. Participation is broadening, leadership is rotating, and the long-running imbalance could be setting up what could be a meaningful catch-up trade in the months ahead.

The divergence between the Invesco S&P 500 Equal Weight ETF (RSP) and the traditional cap-weighted S&P 500, typically represented by SPY, became one of the defining features of the market starting in early 2024. From roughly January 2024 through late 2025, SPY consistently pulled ahead of RSP.

This wasn’t because the average stock was performing exceptionally well, but because a small group of mega-cap companies—the Magnificent Seven—drove a disproportionate share of returns. By 2025, those names had grown to represent close to 30–35% of the entire S&P 500, an unusually high level of concentration by historical standards.

The structure of the two ETFs explains the gap. SPY is market-cap weighted, so the largest companies have the biggest influence on performance. RSP, on the other hand, gives each of the 500 companies an equal weight, making it a better reflection of how the typical stock is doing. As mega-cap tech surged throughout 2024—fueled by AI enthusiasm, strong earnings growth, and massive cash flows—SPY captured those gains far more than RSP. Meanwhile, much of the remaining 493 stocks lagged, which held back the equal-weight index.

This created a prolonged period of weak market breadth. Throughout 2024 and most of 2025, fewer stocks were participating in the rally even as the S&P 500 pushed to new highs. Measures like the RSP/SPY ratio steadily declined, confirming that leadership was becoming increasingly narrow. At multiple points during that stretch, less than half of S&P 500 constituents were trading above their 200-day moving average, even as the index itself was near record levels. That kind of divergence is a classic sign of poor breadth and an unhealthy market structure...(READ THIS FULL COLUMN HERE).

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