S&P 500 strategy shifts as equal-weight funds lag and tech risk resurfaces

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S&P 500 strategy shifts

Highlights

The equal-weight S&P 500 fell over 4% in September 2026, underperforming the market-cap-weighted index for the longest stretch since 2022.
Market breadth is at its weakest since the dotcom bubble, with 42 AI stocks driving 67% of S&P 500 price returns since early 2024.
Technology comprises nearly 40% of the standard S&P 500 and only 16% of the equal-weight version, prompting advisers to recommend blending both ETF types for diversification.

Portfolio positioning as equal weight underperforms

As reported by CNBC, investors who moved into equal-weight S&P 500 funds to limit exposure to the market's largest technology names are still earning less than those who remained in the standard market-cap-weighted benchmark.

That gap has widened in 2026. September marks the harshest month for equal weight this year, capping its longest multi-week losing streak since 2022 after the index falls more than 4%. Even so, the approach is not producing outright losses for investors, it is simply lagging the standard S&P 500.

Recent market gains are becoming more narrowly concentrated. The S&P 500 is reaching new highs even as more individual stocks in the benchmark touch new lows than new highs, while Goldman Sachs says market breadth has dropped to its weakest level since the dotcom bubble. The Kobeissi Letter also finds that a basket of 42 AI stocks has generated 67% of the S&P 500's price return since the start of 2024.

DataTrek Research says the equal-weight S&P 500 has consistently lagged the market-cap-weighted version over any one-year holding period for nearly four years. Still, it argues that the standard index is now dramatically overweight technology, leaving equal weight as at least a partial substitute for investors seeking to lower concentration risk.

Tech concentration keeps diversification debate alive

Technology remains a dominant force in the benchmark, accounting for about 16% of the equal-weight S&P 500 and nearly 40% of the standard index. With tech shares again looking like some of the market's most fragile components, advisers are reconsidering how diversification should work rather than abandoning it.

Todd Rosenbluth, head of research and editorial at TMX VettaFi, says investors should avoid treating the decision as an either-or choice. Instead, he recommends combining market-cap-weighted ETFs with equal-weight products in the same portfolio, allowing investors to keep broad exposure while reducing dependence on a handful of megacap stocks.

On the cap-weighted side, that can include funds such as Vanguard's VOO or State Street Investment Management's SPYM. On the equal-weight side, investors can use products such as Invesco's RSP, or apply the same principle at the sector level through funds such as the ALPS Equal Weight Sector ETF, EQL, to reduce technology concentration.

Some market professionals take a different view and argue that investors seeking similar diversification can add mid-cap exposure instead of relying on equal-weight funds. Rosenbluth says that approach can also help offset the top-heavy nature of the S&P 500, with funds such as iShares' IJH offering one example.

Our earlier coverage of the S&P 500’s push toward 8,000 examined how the rally was being carried by AI-linked megacaps, leaving market breadth weak and concentration risk elevated. We noted that investors were watching whether strong Q3 earnings could offset headwinds such as higher oil prices, elevated Treasury yields, and political uncertainty—factors that could quickly expose the index’s reliance on a small group of leaders.

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