In October, the S&P 500 index fell by 0.9%, largely due to concerns over the sustainability of the artificial intelligence sector and rising oil prices amid escalating U.S.-Iran tensions. However, the equal-weighted S&P 500 index surged by 4.9%, marking its largest monthly gain since April and indicating a strong performance from the average stock.
This divergence suggests that the market is increasingly reliant on a small number of tech giants, which comprise 37% of the S&P 500's market capitalization. Notably, eight of the ten largest companies in the index are tech or AI-related, including Apple, Nvidia, and Microsoft.
Historical data from Bespoke Investment Group shows that when the equal-weighted index outperforms the market cap-weighted index, the S&P 500 typically sees median gains of 4.6% in the following three months and nearly 13% over the next year.
Fundstrat's Tom Lee remains optimistic, projecting that the S&P 500 could exceed 8,200 by year-end, up from its recent close of 7,580.07, suggesting a potential rebound as the market adjusts to recent corrections