"As you'd imagine, the Magnificent Seven have once again contributed more than their fair share to the appreciation in the major index. And while the wind continues to be at their back as they continue to embrace AI tailwinds, some index investors might be growing concerned over the concentration risks in the name and the potential fallout that could happen if an AI bubble were to end up causing a vicious crash with the tech companies at ground zero."
"With the Invesco S&P 500 Equal Weight ETF ( NYSEARCA:RSP), one of the most popular equal-weighted ETFs on the market, rising close to 1.5%, while the S&P gained 0.9% and the Mag Seven-heavier Nasdaq 100 rose less than 0.4%, it's clear that market breadth might be the name of the game going into 2026, especially if investors stay more critical of the big AI spenders until they can finally deliver those profitability numbers to soothe the growing AI valuation concerns."
"As the AI trade becomes viewed as a major source of risk, I do think it makes sense to consider a more equal-weighted basket of stocks, if not for a less choppy ride as AI stocks wobble, perhaps as a play on greater rewards come the great broadening out of the market rally. Over the past full year, the equal-weighted S&P 500 has done nearly nothing, gaining a measly 1%."
The S&P 500 is up just north of 15% year to date despite November volatility. The Magnificent Seven have driven a disproportionate share of those gains while benefiting from AI tailwinds. Rising AI valuation concerns create concentration risk and the potential for a severe downturn if an AI bubble bursts. The recent relief rally produced broader strength, with non-Mag Seven companies and other sectors delivering notable gains. The Invesco S&P 500 Equal Weight ETF (RSP) outpaced the cap-weighted S&P and Nasdaq 100 in the bounce. Equal-weighting may reduce volatility and capture wider upside as market breadth improves.
Read at 24/7 Wall St.
Unable to calculate read time
Collection
[
|
...
]