The S&P 500’s predictive power might've been broken beyond repair

The S&P 500 is no longer the economic crystal ball it used to be. The index looks strong on the surface, because that small group of tech giants (you know, Nvidia, Microsoft, and Meta Platforms) are pulling all the weight harder than they ever have before.

But the problem is those megacaps have grown so big that they now account for around one-third of the total value of the S&P 500. That’s seven companies distorting the signal of 500.

For years, the index was considered a leading economic indicator, even used by the Conference Board in its 10-part Leading Economic Index. But now, that predictive function looks damaged. The rest of the market, the so-called “S&P 495,” has become the real indicator of what’s actually happening.

Seven tech stocks pull the entire index higher

So far in 2025, the S&P 500 has gained over 8%. But that number is a lie if you care about the broader market. The seven largest stocks in the index have risen more than 14% on average, and the median jump among them is above 20%.

The other 493 companies? They’ve only managed an average and median rise of just over 5%. That gap shows how top-heavy the index has become.

The Invesco S&P 500 Equal Weight ETF (RSP), which gives every stock the same importance, has dropped 0.1% this week. In the same time, the standard market cap-weighted index has lost more than 1%. Without the tech names dragging everything around, the picture changes.

Sectors like energy, real estate, and health care, which have been underperforming all year, are finally ahead this week. Meanwhile, the same tech names that led the rally are underperforming.

And it’s not just the S&P 500 that’s being distorted. The small-cap Russell 2000 index, which had been stuck with a small 1.6% gain all year, has jumped 2.5% in August. That beats the S&P 500, which gained less than 1% in the same period.

If macro conditions improve or if the Fed begins to cut rates, smaller, more debt-heavy firms could move faster. But because the S&P 500 is so tilted toward big tech, those changes might not register in the index, any broader economic recovery could be invisible in the benchmark.

And right now, Wall Street isn’t immune. On Thursday, U.S. stock futures barely moved. Dow Jones futures went up by just 50 points. Futures for the S&P 500 and Nasdaq 100 climbed about 0.1% each.

That flatline followed five straight days of losses. The S&P 500 dropped 0.4%, Nasdaq slid 0.34%, and the Dow lost 152.81 points, or 0.34%. The trend is clear. The bull run is tired, and the megacap rally might be wearing thin. The signal is flashing, but it’s hard to tell if it’s a warning or just noise.

Even individual stock stories are showing this instability. Mastercard’s stock pulled back to its 200-day moving average in June. Then it pushed back up. In recent weeks, it regained resistance and is now pushing against its all-time high around $595. It had already recovered all its Q1 losses by early May. After hitting a new record in early June, it once again dropped back down to the 200-day level. That’s where it stands now, testing the edge.

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