U.S. stocks are continuing to move higher to start 2026, but where those gains are coming from has completely changed.
Over the past three years, the S&P 500 (SNPINDEX: ^GSPC) has been pulled higher by a narrow group of megacap tech stocks. This year, tech is one of the worst-performing sectors, and others, including energy, consumer staples, and industrials, have taken its place as the leader.
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That doesn’t mean investing in the S&P 500 is no longer a wise play. It may, however, mean you need to rethink the right way to approach it. Finding ways to reduce tech exposure within an existing large-cap portfolio allocation could work well in the current market environment.
In the traditional S&P 500, technology accounts for roughly 34% of the index. That’s right around the same allocation the index saw during the peak of the tech bubble.
Equal-weighting the index maintains that tech exposure, but in a much less concentrated way. Plus, it lifts the weightings of several sectors that have been laggards in recent years but have performed much better recently. Considering the current market rotation happening within U.S. stocks, I believe the Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP) is the best way to invest in the index right now.
If you’re worried about the risk of having too much of your portfolio in tech, growth, and the “Magnificent Seven” stocks, the Equal Weight ETF solves that issue immediately.
|
Sector |
S&P 500 |
Equal Weight S&P 500 |
Difference |
|---|---|---|---|
|
Technology |
33.4% |
13.5% |
(19.9%) |
|
Financials |
12.9% |
14.8% |
1.9% |
|
Communication services |
11% |
3.9% |
(7.1%) |
|
Consumer discretionary |
10.4% |
9.5% |
(0.9%) |
|
Healthcare |
9.4% |
11.9% |
2.5% |
|
Industrials |
8.6% |
16.4% |
7.8% |
|
Consumer staples |
5% |
7.4% |
2.4% |
|
Energy |
3.2% |
4.6% |
1.4% |
|
Utilities |
2.2% |
6.2% |
4% |
|
Materials |
2% |
5.6% |
3.6% |
|
Real estate |
1.9% |
6.2% |
4.3% |
Data source: S&P Global
The tech and communication services sectors, which house all of the Magnificent Seven stocks, get their combined 43.4% weighting in the S&P 500 trimmed all the way down to 17.4% in the equal-weight version. With the exception of consumer discretionary, every other S&P sector sees a meaningful increase in their index weight, especially those at the bottom of the list.