Spinning Plates
Just a blip, or something more? The S&P 500 Equal Weight Index managed a 1.6% gain over the five days through Friday, as the flagship, market capitalization-weighted gauge slumped by 2%. That’s the equally-weighted group’s largest weekly outperformance since June 2020, according to data from Dow Jones.
Palpable damage is on display across the heretofore-invincible technology-cum-artificial intelligence complex. Roundhill’s Magnificent Seven ETF reached its worst levels since early April on Friday and remains in the red for the year-to-date following today’s 3.1% rally, Nvidia logged an 8.6% decline last week for its worst such showing since the tariff tumult of April 2025, while Microsoft remains on course for its largest monthly selloff since 2000 with an 18% drop for June.
“Rotation is happening and leadership is shifting,” BTIG managing director Jonathan Krinsky told Barron’s. “All of this suggests to us that the semi/AI trade still has meaningful downside, but money continues to find other places within equities and, for now, we would embrace that rotation.”
Financial sea change could loom if that forecast is on the mark. Bank of America global strategist Michael Hartnett relayed late last month that the “AI big ten” – composed of the magnificent seven tech stocks alongside chipmakers Broadcom, AMD and Micron – collectively command 40% of total U.S. market capitalization. That level of concentration mirrors past manic periods, with technology, media and telecom reaching a 41% share in 1999, Japan logging a 44% weighting in the MSCI All Country World Index in 1989 and the so-called Nifty Fifty garnering 40% of the U.S. market in 1972. Only the railroads, at 63% in 1873, reached a materially higher share in BofA’s data set.
With the cap-weighted S&P pitched at 40.7 times its Shiller cyclically-adjusted price-to-earnings ratio, its richest-ever price tag outside 1999 into 2000, great expectations leave the bull crowd with little room for error: FactSet’s John Butters relayed Friday that sell-side analysts collectively pencil in 23.1% annual earnings growth during the second quarter, up from an 18.8% estimate as of March 31. That marks a departure from the norm, as Wall Street typically walks down its forecasts during a given quarterly period, paving the way for “better than expected” results (the average such downshift during the past decade stands at 2.7%). The Information Technology subsector sports a 63.2% annual earnings growth bogey, up from 48.5% at the end of March.
Attention, value-seekers: see “Discards of the bubble” from the current edition of Grant’s Interest Rate Observer dated June 19 for a trio of picks-to-click operating beyond Silicon Valley’s sprawling purview.
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