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On its face, 2025 has been a good year for the stock market. The S&P 500 was dragged out of its tariff-induced springtime slump by a small subset of AI-forward power players whose spectacular gains defied an otherwise softening economy. Even now, despite a rocky November, the benchmark index is up more than 12 percent since the start of the year.
A group of trillion-dollar brands known as the “Magnificent Seven” — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla — has been at the forefront of those gains, thanks in large part to corporate spending and intense interest in artificial intelligence. But economists and investors are raising concerns about the companies that aren’t part of the AI investment boom — in other words, most businesses in the United States.
An index that leaves out the seven high-flying tech firms — call it the S&P 493 — reveals a far weaker picture, as smaller and lower-tech companies report lackluster sales and declining investment.
“You have the headwind of de-globalization and tariffs, and the tailwind of AI … those forces are battling to a draw, and in that crosswind you get winners and losers,” said Moody’s Analytics chief economist Mark Zandi. “Anything that is not connected to AI is throttled lower.”
Some experts are worried that the S&P 500, an index of large-company stocks that underpins the fortunes of millions of Americans with 401(k) and other retirement accounts, has become too reliant on the Magnificent Seven; they collectively account for about a third of its value, leaving the broader stock market heavily dependent on the continued success of “the AI trade,” says Torsten Slok, chief economist at the private equity firm Apollo Global Management.
“There is no diversification in the S&P 500 anymore in my view … it is all the AI story now,” Slok said.
Publicly traded small and midsize companies have taken a beating by comparison. The Russell 2000 lost 4.5 percent in the one-month period leading up to Friday, compared with a loss of around 2 percent for the S&P 500. A little more than a third of the companies in the Russell 2000 index either don’t make money or are losing money.
The market’s concentration in Big Tech has also given rise to concerns about what would be left if an AI bubble were to burst. Those fears have been amplified in recent weeks as Big Tech names suffered a modest sell-off, with some analysts raising concerns that the AI industry has overspent on infrastructure at a time when the technology’s actual profit-generating potential is still nascent.
Tech stocks have endured a series of rocky sell-offs since late October, with the tech-heavy Nasdaq index falling around 7 percent from its Oct. 29 peak. Markets rebounded Friday, with the index trimming some of its losses from earlier in the week.
Slok, the Apollo economist, says he is particularly worried about the recent AI losses because so much of the recent economic growth has been shored up by free-spending wealthy households. A deep correction in AI stocks, if it ever arrived, could threaten the “wealth effect” that is doing so much to prop up the economy, Slok warned.
© 2015 Mutual Fund Observer. All rights reserved.
© 2015 Mutual Fund Observer. All rights reserved. Powered by Vanilla
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If the US govt had a way to manipulate US markets behind the scenes, they would need to be using those levers now more than ever.
Here is a piece I read from NPR (there are many others i come across). Short excerpt: https://npr.org/2025/11/23/nx-s1-5615410/ai-bubble-nvidia-openai-revenue-bust-data-centers
junkstuff. My own equity selections do not include any of it on the menu.OTOH, they do have a history of making big announcements to placate politicians. This article at Forbes is paywalled, but I got in for free, you might too.
S&P top ten over time:
The-10-Largest-SP-500-Companies
"There are companies that can stay in the top 10 for a very long time.
IBM was in there until 1990.
They were at the top of the heap all the way back in the 1960s.
Exxon was in the top 10 from 1980 to 2015 before finally dropping out."
"The other pattern is there is plenty of turnover at the top.
This table covers the top 10 every 5 years going back to 1980 so that’s 100 slots.
I count 42 different companies in total.
So on average there are roughly four new companies that enter the top 10 every 5 years."
What I don't see, and it may very well be my problem, is how these other top ten stocks accounted for so much of the return in comparison to what we are seeing now. In other words, if we were to look at the returns of the top ten before the dot-com crash or the Great Recession, would we see the remaining 490 stocks lagging more, less, or the same as what we are seeing now?
more-equal-than-others-20-years-of-the-sp-500-equal-weight-index.pdf
In a slightly different direction...
This looked like a delicious side dish of information (link below) to bring to this S&P 500 discussion table:
https://visualcapitalist.com/sp-500-annual-returns-since-1874/
If I look at funds that have been around for fifteen years the under-performers are mostly low-volatility funds that loss less than RSP, or actually gained, in 2022. Many of those go on to beat RSP over shorter M* periods.
And it's not just growth funds, VEIRX, VVOIX, and RWL all beat RSP across the M* time frames of a year, or more.