Wolfe Research reports that the market-weighted S&P 500 has recently underperformed an equal-weighted version of the index, even as year-to-date performance now appears nearly level after a powerful run that began in October 2025 and continued until the Iran conflict emerged. The firm highlights a striking concentration in the latest rally, where a small group of technology giants tied to the artificial intelligence buildout has shouldered most of the gains.
According to Wolfe, 10 of the largest technology companies that are positioned to benefit from AI accounted for roughly 70% of the S&P 500's return during the most recent rebound. That concentration means market-cap measures of performance have lagged when broader participation across companies is limited.
Wolfe Research projects that the pattern may persist as AI remains the preeminent investment theme. The firm argues these technology leaders offer secular growth characteristics that investors may prize if broader economic expansion shows signs of deceleration later this year.
The research note also points to weakening growth in major non-U.S. economies, a slowdown it attributes in part to persistently higher energy prices. That dynamic, Wolfe says, has prompted foreign investors to shift capital back into the U.S., reinforcing the domestic equity rally concentrated among the largest technology names.
Investors are, the firm adds, assigning a small but rising probability to a stagflationary scenario. Wolfe highlights that resilient earnings from mega-cap technology companies have helped sustain the AI narrative, and that strong results appear to be energizing investor interest in perceived winners across segments such as semiconductors and memory.
Wolfe's assessment suggests continued investor focus on a narrow set of companies that are closely linked to the AI buildout. That focus has translated into disproportionate indexing performance where a handful of stocks have a dominant influence on the market-weighted index's returns.
In sum, the firm sees AI as the central market theme for now, supported by solid mega-cap tech earnings and by capital flows returning to the U.S. amid softer overseas growth. The same forces, Wolfe cautions, underpin a market environment where gains are heavily concentrated among a small group of large technology firms.
Key points
- The market-cap-weighted S&P 500 has underperformed its equal-weighted counterpart, with year-to-date performance now nearly equal after the October 2025 rally through the start of the Iran conflict.
- Ten large technology companies tied to the AI buildout were responsible for about 70% of the S&P 500's return in the recent rebound.
- Wolfe Research expects AI to remain the dominant market theme, supported by solid mega-cap tech earnings and investor reallocations into the U.S.
Impacted sectors
- Technology - particularly semiconductors and memory.
- Energy - via the effect of higher prices on global growth and capital flows.
- Global equities - through reallocations by foreign investors back to U.S. markets.
Risks and uncertainties
- Concentration risk - the recent S&P 500 gains are heavily driven by a small subset of technology firms, which may leave broader market performance vulnerable if those names weaken.
- Slowing global growth - major non-U.S. economies are experiencing slower expansion, a trend Wolfe links to persistently higher energy costs, and which could dampen multinational earnings.
- Stagflation probability - investors are pricing in a small but increasing chance of a stagflationary environment developing, creating uncertainty for asset allocation decisions.