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        Weekly Market Update

        S&P 500 Leadership Shifts Beyond Tech

        The tech-heavy “Mag 7” has led the S&P 500, but a shift is underway. By 2025, the equal-weighted index is set to catch up in earnings, broadening leadership beyond mega-cap tech, with strong growth expected in non-tech sectors like Health Care and Industrials.

        5 min read
        Dane Smith
        Head of North American Investment Strategy & Research
        Chris Carpentier, CFA, FRM
        Senior Investment Strategist
        Aditya Patel, CFA, CA
        Research Analyst, Investment Strategy & Research
        Zanub Raza
        Fixed Income Portfolio Specialist
        Saketh Reddy, CFA, CFA
        Research Analyst, Investment Strategy & Research

        For a while now, a narrow segment of the market, primarily driven by the tech-heavy “Mag 7,” has had an outsized impact on US stock performance. These mega-cap stocks now represent nearly 30% of the S&P 500. Their influence has led to the cap weighted index’s higher returns and valuations.

        However, this dominance is starting to show signs of change. Comparing the cap weighted S&P 500 index to its equal weighted counterpart reveals a changing story in projected earnings growth between 2024 and 2025. Specifically, next year the equal weighted index is expected to catch up, with similar earnings, removing the lopsided differences. This shift could indicate a potential broadening of market leadership away from the giant large caps and toward “the rest.”

        This rounding out of earnings illustrates more diversified opportunities in the market for investors. The equal weight index has a value tilt and greater exposure to cyclicals and smaller large-cap companies. Some non-tech sectors, like Health Care, Materials, and Industrials, are poised for much stronger earnings growth in 2025, with each expected to growth by more than 15%. This aligns with a potential rotation out of high-valuation tech stocks. We are cautious to say this is the end of the tech run, as it will always be a pillar of the US economy. However, in 2025, we may start to see a larger opportunity set within US large caps.

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