The S&P 500's rally is broadening well beyond a handful of AI-linked megacaps, with the highest share of individual stocks beating the index in four years. Investors now face a test of that breadth this week as fresh inflation data and a slowing run of earnings reports arrive.
Shares of 226 companies in the S&P 500, or 45% of the index, are outperforming the benchmark this year — the highest share since 2022, following three straight years in which roughly a third or fewer of constituents beat it. That marks a shift from earlier this year, when the rally leaned heavily on a small group of mega-capitalization technology companies tied to the artificial-intelligence buildout.
The equal-weight index is closing the gap
The market-cap-weighted S&P 500 closed Friday at a record high and posted its best week since April. It has rallied 13.3% in 2026.
Meanwhile, the Invesco S&P 500 Equal Weight ETF, which weighs each component the same rather than by market capitalization, has climbed 15% this year, according to Dow Jones Market Data. That puts it on pace to outperform the S&P 500 for the first time since 2022.
Valuations still leave room to run
The market-cap-weighted S&P 500 trades at just above 20 times forward earnings, according to FactSet data. The equal-weighted version recently traded at roughly 17 times forward earnings, in line with its 20-year median, according to Jonathan Curtis, a portfolio manager at Franklin Templeton. That gap suggests investors have not yet priced in AI-driven productivity gains for the typical company, Curtis said.
Inflation data looms as the next test
Still, the broadening faces an immediate test. After a weak July jobs report showed the economy lost jobs, investor focus turns to consumer and producer price data due this week, and to whether the market-implied odds of a Fed rate hike at the Sept. 16 meeting — which fell after the jobs data — shift again.
According to Brent Wilsey, chief investment officer at Wilsey Asset Management: Friday's negative payroll number "likely doesn't change much for the Federal Reserve," but raises the importance of this week's data. The consumer-price index for July is due Wednesday and is expected to rise 0.3% for the month, for a year-over-year increase of 3.4%. The producer-price index follows Thursday and is seen rising 0.2% for the month, after a negative 0.3% print the prior month.
88% of the S&P 500 has already reported results for the latest quarter, and the pace of earnings reports slows from here, though a handful of high-profile companies still report this week.
Source: MarketWatch
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