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).
Invest in Gold
Powered by Money.com – Yahoo may earn commission from the links above.
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:
When they rally, the index flies — even if many other stocks tread water.
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.
www.barchart.com
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:
Story Continues
Chart SPY vs. RSP on Barchart’s Interactive Chart. Add a Relative Strength (RS) study (RSP vs. SPY) to visualize when breadth is improving or deteriorating.
Layer RSI and MACD to gauge momentum in both.
Open any large-cap ETF (e.g., SPY, QQQ, XLK) and click to the Holdings tab to view top weights. This makes concentration visible — and comparable — across funds.
Click through Related ETFs on each Mag 7 ticker to find alternatives that dilute single-name risk (e.g., equal-weight, value-tilt, or sector-balanced funds).
Create a watchlist with the Mag 7 and a cross-section of non-tech leaders (such as industrials, financials, utilities).
From the watchlist, launch the Screener and filter for:
RSI ranges (to avoid overbought chases)
Performance dispersion (3-month vs. 12-month) to spot rotations
Valuation proxies (P/S, P/E where available on ETFs or via constituents)
Trend filters (MAs sloping up/down) to confirm direction.
Then, save the screener and turn on email alerts so new symbols that fit your “balanced leadership” rules auto-surface.
Check the SPY Put/Call Ratio on Barchart’s options pages, since a rising P/C can flag growing downside hedging.
Use New Recommendations and Technical Ideas to spot changes in signal quality outside the mega-caps (early signs of broadening or faltering).
If you hold cap-weighted index exposure, consider pairing with equal-weight or factor ETFs to reduce single-group dependency.
For tactical hedging at new highs, review protective collar and put strategies from our recent videos on YouTube — options premiums can be attractive when volatility is subdued.
When one group controls a third of the index, portfolio outcomes hinge on a few tickers. History says that high concentration and a thin equity risk premium don’t guarantee a top, but they do lower the margin for error.
Use Barchart tools to measure concentration, screen for balance, monitor stress, and alert yourself to signs of rotation — so you’re prepared whether leadership keeps running… or hands the baton to the rest of the market.
Watch the Market on Close segment breaking down Mag-7 concentration:
On the date of publication, Barchart Insights did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
