The American market shows impressive results, but behind the capitalization growth lies an extremely uneven dynamic. How many companies are actually participating in the bull market - and why this is more important than another index record?
There is a category of news on the financial market that sounds very convincing right up until you open the table with details. “S&P 500 is again near highs” is one of them. It sounds like a celebration for all owners of American stocks. Only the celebration turns out to be a closed event: some companies sit at the main table, while others did not even receive an invitation.
According to Reuters calculations as of October 12, the S&P 500 has added about 14% since the beginning of 2026. At the same time, more than 40% of the index companies were trading below the beginning-of-year level, and the median stock rose by only about 4%. For a quarter of the components, the decline reached 11% or more. This is not a random statistical anomaly. It is a description of a market in which a small group of leaders makes the index much stronger than most of its constituents.
My main thesis: the index can rise even when individual market participants are losing money en masse. Confusing index returns with the health of all companies means looking at the average temperature when patients have completely different diagnoses.
How a few companies turn into “the whole market”
The standard S&P 500 is weighted by market capitalization taking into account free-float shares. The higher the issuer’s capitalization, the greater the contribution its movement makes to the overall dynamics of the benchmark. This is logical for reflecting the value of the public American market, but it creates an important concentration effect.
If the largest technology company grows by several percent, it can add more points to the index than the simultaneous decline of dozens of smaller participants takes away. Therefore, a headline about S&P 500 growth does not say how many stocks actually rose in price.
An alternative construction is the S&P 500 Equal Weight: during rebalancing, the weights of the components are made equal. By comparing the capitalization-weighted and equal-weighted versions, an analyst can assess how much the result is provided by the largest issuers and how much by the broad market. The methodology of both types of indices is published by S&P Dow Jones Indices.
The equal-weighted index is not the “true” S&P 500, nor is the standard one “false.” They answer different questions. One shows the dynamics of capitalization, the other reduces the dominance of the largest companies. It is important not to confuse the measurement tasks.
AI monopoly on investor attention
According to Reuters, more than ten percentage points of the roughly 14% growth of the S&P 500 in 2026 came from the technology sector. At the same time, its own capitalization is significantly larger than the capitalization of many other sectors. Nvidia, Apple, Micron, AMD and individual companies related to artificial intelligence infrastructure made a noticeable contribution to the benchmark’s growth.
The median stock, I remind you, rose significantly less than the index. And more than 200 companies were in the red. This does not mean that the AI growth is fictitious. A number of chip manufacturers have indeed seen increased sales, and large platforms are investing huge amounts in computing infrastructure. But the financial market distributes expectations extremely unevenly.
As a result, an investor may own a quality industrial, consumer or real estate business and watch his paper lag behind the general market. He begins to ask himself: “Maybe I misunderstand the economy?” Possibly. Or possibly he simply does not hold the few companies that determine the return of the capitalization-weighted index.
This gives rise to a dangerous incentive: to chase already risen leaders not because of an improvement in their valuation, but because of the fear of falling behind the benchmark. At first this is called strategic capital allocation. Later, if the process drags on, it becomes “everyone is buying, so I should too.” The last phrase usually does not appear in professional investment memoranda, although it sometimes determines their meaning.
Why index growth and market deterioration can occur simultaneously
Some American companies are facing real pressure. High Treasury yields increase the cost of debt. The energy shock raises costs. Wage and transportation cost growth reduces margins for companies that cannot quickly raise selling prices. The buyer becomes more sensitive to the cost of goods and services.
At the same time, individual technology companies receive huge demand for their products. Their results partially offset the weakness of other sectors in the aggregated index. This is how the paradox is formed: the national benchmark has a good year, while many individual companies do not.
Reuters reported that less than half of the S&P 500 components were above their 200-day moving averages. This is one indicator of weak market breadth. It cannot be used as an infallible reversal signal: in a prolonged uptrend, a local narrowing of breadth can persist for months. But it should not be ignored at record index values either.
And there is a subtlety that is especially important to understand. On October 12, one trading session could show growth in the majority of components, even if the accumulated return of many of them since the beginning of the year remained negative. Daily breadth and multi-month trend breadth are different metrics. Mixing these quantities leads to bad conclusions even among people who read the news carefully.
Concentration – strength or vulnerability?
The dominance of leaders does not necessarily mean a bubble. At certain stages of the economic cycle, investors naturally concentrate capital in companies with the strongest balance sheets, pricing power and earnings growth. The largest issuers can account for a disproportionately large share of market capitalization growth because they actually earn more.
Danger arises when the market stops asking about the price of this superiority. If positive expectations are already priced into multiples, even good reporting may turn out to be not good enough. The risk becomes systemic: the large leaders of index growth simultaneously begin to determine the behavior of passive funds, derivatives and the sentiment of portfolio managers.
Such a market has two paths to recovery. The first – the corporate profits of the leaders continue to grow and gradually justify the valuations. The second – participation broadens: industry, the financial sector, consumer companies and small caps begin to catch up with the leaders. Both scenarios can support the market.
The most unpleasant scenario is a reversal of a small group of leaders against the background of weakness in the remaining companies. Then the stock index loses its main support, and the “hidden correction” becomes obvious to everyone.
What to watch besides the S&P 500 price
I prefer to evaluate five sets of signals.
First – the equal-weighted index versus the regular S&P 500. Sustained improvement in relative dynamics indicates broadening participation in growth. Prolonged deterioration means further concentration.
Second – the share of stocks above the 50- and 200-day averages. It allows distinguishing a short bounce from a broader medium-term trend. It is important to assess the dynamics of the indicator over time, not the magical value of a single day.
Third – the advance/decline line and the number of new 52-week highs and lows. When the index updates its high while fewer and fewer stocks confirm the move, a divergence arises. But divergence by itself does not give an exact correction date.
Fourth – earnings dynamics by sector. If EPS growth is limited to a few technology issuers, the stock market depends on their ability to maintain forecasts. Expansion of positive EPS revisions to industry, finance and the consumer sector creates a more sustainable base.
Fifth – cost of capital and credit conditions. Treasury yields, high-yield spreads, the state of lending and oil prices provide information on whether lagging sectors can recover.
These indicators do not replace fundamental company analysis. They help understand the environment in which investment ideas will be realized.
Indices and diversification: be careful with the illusion of diversity
Some investors believe that buying the S&P 500, Nasdaq-100 and several popular technology ETFs automatically creates a diversified portfolio. But if the largest positions overlap, the real concentration may be higher than it seems from the number of lines in the app.
An index product diversifies the risk of an individual issuer within its methodology, but does not eliminate market risk and does not guarantee protection from sector bias. Broader indices, equal-weighted constructions, small-cap instruments and bonds can change the risk profile – yet each solution has its own costs and sensitivity to macroeconomics.
For example, the equal-weighted index reduces the dominance of megacorporations, but increases the relative share of smaller companies that may be more dependent on the cost of debt. The Russell 2000 provides access to small companies, but they are especially sensitive to the American credit cycle. There is no free way to remove one risk without acquiring any others.
Three scenarios for the coming months
Broad bull market. Inflationary pressure decreases, the cost of capital stabilizes, and profits outside AI grow. The equal-weighted index and lagging sectors begin to catch up with the leaders. For investors this is a sign of healthier participation.
Concentrated continuation of growth. AI companies maintain strong profits, but other sectors remain under pressure from expensive financing and energy. The capitalization index may update highs with weak breadth. Such a structure can last longer than skeptics expect, but dependence on a few issuers increases.
Correction of leaders. The payback on AI spending disappoints or rates rise again. The largest companies lose their valuation premium, and weak sectors cannot compensate for their decline. Then the index drawdown may turn out to be sharper than assumed based on the previous calm movements of the benchmark.
I do not consider the third trajectory inevitable. But it has a sufficiently high potential price to think through its impact on portfolio structure in advance.
Conclusion
Wall Street lives in an era when a few of the largest companies can be the locomotive of the entire index. From a technical point of view this is a normal feature of capitalization weighting. From an analytical point of view it is a reason never to stop at a single number.
My conclusion: today’s S&P 500 record should be read together with market breadth, earnings concentration and the cost of capital. Without this, the index resembles a school report card in which the class average was pulled up by a few top students while the problems of the rest were suggested not to be discussed.
For me, strong analysis begins where delight at a new high ends. It is important not only to know how much the market has risen, but also to understand who exactly provided this growth, why and how sustainable its advantage is.
Article prepared by Head of the Analytical Department of TradePas Dmitry Borisovich Blagodarsky