US stocks leadership showing signs of broadening beyond tech

• The equal-weight S&P 500 gained over 5% since end of October versus just 1% for the standard index, indicating the average stock is outperforming market-cap weighted heavyweights
• All 11 S&P 500 sectors are expected to show at least 7% earnings growth in 2026, with the 'Magnificent Seven' earnings growth advantage narrowing to 23.5% versus 13% for the rest of the index
• Tech still accounts for one-third of S&P 500 weight and expects over 30% earnings growth in 2026, meaning the sector will likely remain influential even as leadership broadens

US Stock Market Leadership Broadening Beyond Technology Sector

After years of technology stocks dominating the US bull market, investors are increasingly betting on a leadership shift toward industrials, healthcare, and small-cap companies. The S&P 500 has risen over 90% since the bull market began three years ago, largely driven by tech giants like Nvidia, Alphabet, and Broadcom.

Key Market Developments:

Recent trends suggest diversification is underway. Since late October, the equal-weight S&P 500 has gained over 5%, outpacing the standard index's 1% rise. This indicates broader market participation beyond heavyweight tech stocks. Morgan Stanley characterized the shift as "The Broadening Is Underway," noting the median S&P 500 stock trades at a P/E ratio of 19x versus 22x for the cap-weighted index.

Earnings Growth Expectations:

All 11 S&P 500 sectors are projected to show at least 7% earnings growth in 2026. The "Magnificent Seven" tech stocks are expected to deliver 23.5% earnings growth, while the rest of the S&P 500 should achieve 13% growth—a narrowing gap that could support broader market leadership. The tech sector itself still projects over 30% earnings growth versus 15.5% for the overall index.

Key Concerns:

Investors cite elevated tech valuations and uncertainty around AI investment returns as catalysts for rotation. However, tech's dominant position—comprising one-third of S&P 500 weight—means it will likely remain influential. Historical data shows the S&P 500 has never gained 10%+ annually when tech underperforms other sectors.

Investment Strategy:

Analysts recommend balancing growth stocks with value-oriented sectors like financials and industrials while maintaining tech exposure, avoiding both overweighting and underweighting the sector.