S&P 500 concentration risk persists as equal-weight funds lag

The S&P 500 concentration risk has not gone away: technology stocks still account for nearly 40% of the standard, market-cap-weighted index, according to CNBC. For everyday investors who use an S&P 500 fund as a core holding, that means the index’s return can be driven heavily by a relatively small group of the largest technology and AI-related companies.

That risk has persisted even though an alternative, the equal-weight S&P 500, has recently performed worse than the standard index. CNBC reported that the equal-weight version fell more than 4% in September, ending its longest multweek losing streak since 2022, and has trailed the market-cap-weighted S&P 500 in 2026.

What is the S&P 500 concentration risk?

The regular S&P 500 gives larger companies a larger share of the index. When the biggest stocks rise, they can lift the whole benchmark even if many smaller index members are falling. An index fund that tracks this version generally follows those same weights.

CNBC said technology represented about 16% of the equal-weight S&P 500, compared with nearly 40% in the standard index. Equal-weight funds hold roughly the same dollar amount of each constituent at rebalancing, rather than assigning the largest companies the largest positions. That reduces exposure to the largest stocks, but it can also lag when those companies lead the market.

Recent trading illustrated that divide. CNBC reported that the S&P 500 reached new highs even as more of its 500 members recorded new lows than new highs. That measure, known as market breadth, tracks how widely gains are spread across an index. CNBC said a Goldman Sachs analysis found breadth had fallen to its lowest point since the dot-com bubble.

CNBC also cited The Kobeissi Letter’s analysis that 42 AI stocks produced 67% of the S&P 500’s price return from the start of 2024. That figure was relayed by CNBC and was not independently verified in its report, but it underscores the article’s point: strong headline index returns do not necessarily mean gains are broad-based.

Why did equal-weight S&P 500 funds lag?

Equal weighting gives more influence to smaller members of the index and less to its biggest technology names. That design has been a disadvantage while large technology stocks have supplied an outsized portion of the S&P 500’s gains, CNBC reported. Underperformance, however, does not change the underlying difference in exposure between the two index designs.

Todd Rosenbluth, head of research and editorial at TMX VettaFi, told CNBC that investors should not treat equal-weight and market-cap-weight funds as an all-or-nothing choice. That is an analyst’s view, not a guarantee that either approach will outperform.

Are interest rates a separate stock-market risk?

Yes. Rates and Treasury yields are a separate concern from index concentration. U.S. Bank says higher rates can increase borrowing costs, restrain demand, reduce the value investors place on future earnings and make bonds more competitive with stocks. The Federal Reserve similarly says interest rates affect household and business borrowing and spending decisions.

Goldman Sachs’ Tony Pasquariello said in September that the bond market could be the largest risk to additional equity gains, an analyst assessment. But CNBC’s central risk was different: an S&P 500 whose performance remains unusually dependent on a narrow group of large technology stocks.

This story draws on original reporting from CNBC.