For a number of years, articles about the major tech stocks overwhelming the rest of the equity market were crammed into whatever space was available in the financial press. Market participants were swept into a period Federal Reserve Chair Alan Greenspan characterized as “irrational exuberance.” Some market followers argued that traditional financial metrics, like the price-to-earnings ratio, were obsolete in the digital “new economy.”
Greenspan’s December 5, 1996, characterization of stock market valuations proved to be far too early, as four more years passed before the market faced an abrupt awakening with the S&P 500 (the Index) falling 10.14%, 13.04%, and 23.37% respectively in 2020 through 2022.
However, the fascination with technology did not end there. It took until 2009 for the Technology Sector to top the Index, and another 7 years passed before it would be the top-performing sector again. However, tech’s dominance resurfaced vigorously as it led the S&P 500 in 2023 and was the second-best sector in 2024 and 2025, topped in these two years by the Communications Services Sector that shares many of the characteristics of the Technology Sector.
Investors lamented that the performance of a typical stock portfolio in 2023 through 2025 lagged the capitalization-weighted Index significantly, as the Index was heavily skewed by the results of the so-called Mag 7 (NVIDIA, Apple, Alphabet, Microsoft, Amazon, Meta, and Tesla) that account for approximately 34.3% of the S&P 500's total market capitalization. This led to the conclusion that keeping pace with the Index meant accepting its historic level of concentration.
A sarcastic cliché says that the stock market’s main purpose is to confound as many investors as possible. Eighteen months ago, that cliché began to unfold as the market entered a subtle shift that, by early this year, showed that a version that equally weights the 503 members began to outperform the Index. Chart B illustrates the three-month performance of the Index and the Invesco S&P 500 Equal Weight ETF (RSP) ending February 10, 2026.
If history is any indication, the recent performance shift will reach an extreme, and another shift will follow, which is why this must be viewed from a long-term perspective. However, when you look at the relative results of the two S&P 500 measures since the inception of RSP (April 24, 2003), its equal-weight composition has outperformed the Index.
Investors often did not question how the notable outperformance of the Index was achieved as the results cast aside concerns, even though Index-only holders’ portfolios were concentrated in a manner that would make anyone managing a risk adjusted portfolio nervous. The recent slide in technology stocks highlighted the damage an excessively concentrated portfolio can suffer.
This all leads to something we have said many times, which is to be sure you really understand what you own. The Index and RSP hold the same stocks, but how and why each market measure reacts as it does can differ significantly.
Disclaimer:
Past performance is no guarantee of future performance and future returns are not guaranteed. There are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment. This report is provided for informational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis. Any indices and other financial benchmarks shown are provided for illustrative purposes only, are unmanaged, reflect reinvestment of income and dividends and do not reflect the impact of advisory fees. Investors cannot invest directly in an index.
