U.S. equity markets have been whipsawed in the past few days, with initial optimism surrounding Big Tech earnings powering the S&P 500^® to an intraday high, and subsequent disappointing reactions to earnings coupled with the Fed’s decision to hold rates steady leading to a sharp retreat for The 500^®.

The pullback in Tech and the rotation toward small-cap stocks have been major market themes that have characterized the start of 2026.¹ The S&P SmallCap 600^® has outperformed The 500^® by 4% month-to-date as of Jan. 28, 2026, propelled by strong economic growth and robust corporate earnings.

As the breadth of returns has started to expand beyond mega-cap leaders, it may be an interesting time to examine equal-weight strategies, which by design have a small-cap bias and offer a more broad-based footprint than their capitalization-weighted peers.

Exhibit 1 shows that the S&P 500 Equal Weight Index outperformed the capitalization-weighted S&P 500 by 3% over the three months ending Jan. 28, 2026, coinciding with a decline in market concentration, with the aggregate weight of The 500’s top 10 companies falling below 40% since Q3 2025.

(Click on image to enlarge)

Notably, market participation has expanded beyond the mega-cap names. Following the peak in concentration in early November, the sources of the S&P 500’s performance have shifted across the capitalization spectrum. Exhibit 2 shows that while the top 100 companies accounted for the majority of the index’s gains for most of 2025, mega-cap weakness has caused their contribution to decline considerably since then, as outperformance has shifted to the bottom 400 companies.

(Click on image to enlarge)

Sector-level dynamics further explain this shift. In a Brinson sector attribution of the S&P 500 Equal Weight Index versus the S&P 500, Exhibit 3 shows that the S&P 500 Equal Weight Index’s underperformance for most of last year and its subsequent outperformance relative to the S&P 500 was largely driven by an underweight in Information Technology, consistent with the sector’s recent travails.

(Click on image to enlarge)

The S&P 500 Equal Weight Index’s factor profile has also played a supportive role. In addition to its small-cap bias, the S&P 500 Equal Weight Index has historically maintained a persistent tilt toward value and away from momentum, as the strategy, by definition, regularly rebalances away from relative winners and toward relative losers. These factors have benefited from improving market breadth and a rotation away from large-cap growth- and momentum-oriented stocks. Notably, the S&P 500 Value has outperformed S&P 500 Growth, and the S&P 500 Momentum Index has underperformed The 500 by 2% so far in January.

Exhibit 4 shows that periods of extreme relative S&P 500 Momentum Index outperformance have often been followed by outperformance in the S&P 500 Equal Weight Index, reflecting the naturally inverse relationship between the two approaches. This historical trend may be particularly relevant following the S&P 500 Momentum Index’s stellar outperformance in 2025.

(Click on image to enlarge)

If the headwinds facing Big Tech continue to worsen, the increase in market breadth and the rotation away from large caps may potentially persist. We do know that periods following extreme market concentration have historically coincided with the outperformance of the S&P 500 Equal Weight Index, and it may be useful for market participants to understand the sources and drivers of the strategy’s relative performance.

¹ The Wall Street Journal, “Small Stocks Finish Week at Records,” Jan. 16, 2026. 

More By This Author:

Fashionably Late Cycle: The S&P 500 Market Leaders Index
All That Glitters Isn’t Just Gold: 2025 Thematic Performance In Review
Houston, We Have An Index: Exploring the S&P Kensho Global Space Index