The market-cap weighted S&P 500 (SPX), tracked by SPDR S&P 500 ETF Trust (SPY), is currently outperforming the equal-weight S&P 500 (SPX) by the widest margin in 24 years. That spread reflects an advance driven disproportionately by a small group of mega-cap leaders, while the median index constituent lags significantly.
Such concentration has clear historical precedents. In prior episodes of extreme gaps between SPY and the equal-weight benchmark, represented today by Invesco S&P 500 Equal Weight ETF (RSP), subsequent periods often saw mean reversion in breadth, with RSP outperforming as smaller and previously lagging constituents played catch-up.
Past cycles around the dot-com peak and the early post-2009 recovery showed that prolonged phases of narrow leadership were eventually followed by multi-year intervals in which equal-weighted exposures led cap-weighted indices. In those phases, broad-based sector baskets and cyclicals participated more evenly, while earlier mega-cap leaders transitioned from leaders to relative laggards.
In the current environment, mega-cap platform names such as Apple (AAPL) are among the largest contributors to SPY’s dominance and are heavily overrepresented in cap-weighted indices relative to equal-weight constructs. If the historical pattern of breadth mean reversion reasserts itself, SPY could lag RSP on a relative basis while equal-weighted strategies, including RSP and equal-weight technology funds like Invesco S&P 500 Equal Weight Technology ETF (RYT), potentially benefit from a broadening advance.
Terminology
- 01Equal-weight index: Index where each constituent carries the same weight regardless of market capitalization.
- 02Cap-weighted index: Index where each constituent’s weight is proportional to its market capitalization.
- 03Mean reversion: Tendency for performance or valuation extremes to move back toward historical averages.
References
- https://www.fool.com/investing/2026/01/22/the-sp-500-just-did-something-weve-never-seen-befo/
- https://blog.syzgroup.com/syz-the-moment/the-equal-weight-sp-500-in-blue-is-underperforming-the-sp-500-in-orange-by-the-largest-margin-in-more-than-24-years
- https://www.rbcwealthmanagement.com/en-us/insights/the-great-narrowing-sp-500-concentration