When a handful of mega-caps dominate a cap-weighted index, your portfolio’s fate becomes tied to a very small group of stocks. In the August 15 Market on Close livestream, John Rowland, CMT, and team walked through why the current market setup deserves your attention — and how to prepare using Barchart’s tools.
The S&P 500 Index ($SPX) is market-cap weighted, so larger companies move the index more. And there aren’t too many bigger companies than the “Magnificent Seven” group of Apple (AAPL), Amazon (AMZN), Alphabet (GOOG) (GOOGL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
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Recently, multiple outlets pegged the Mag 7’s combined weight at around ~34% of the S&P 500 — an all-time high.
Concentration cuts both ways:
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When they rally, the index flies — even if many other stocks tread water.
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When they wobble, the whole index can roll over, even if breadth elsewhere looks OK.
Recent data also shows how the cap-weighted S&P has outpaced its equal-weight cousin, which keeps every stock weighted the same, underscoring how much leadership rests in a few names.
In the clip, we reference a UBS note flagging that when Mag-7 weight crossed certain thresholds (~27.5% and ~34%) in the past, the S&P 500 went on to stage a short rally before falling roughly ~13% over the next two months — i.e., a textbook “correction.” That doesn’t guarantee a drop this time, but it’s a risk marker worth respecting. That’s particularly true since UBS and many others have already been vocal about concentration risks in 2025.
Another caution light comes from the equity risk premium (ERP). ERP is the expected return of stocks over risk-free Treasuries, and it has now slipped toward multi-decade lows, meaning stocks are expensive relative to bonds and forward returns can be thinner. That’s been highlighted by Bloomberg and others this summer.
None of this screams “go to cash.” It does argue for: