The S&P 500 and its “equal weight” twin hold the same 500 stocks, yet they’ve never moved so differently.

In the regular S&P 500, the biggest companies get the biggest slices. A group of seven tech giants known as the Magnificent Seven (“Mag 7”) makes up roughly a third of that index.

Those seven are Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).

The equal-weight version gives each company the same 0.2% slice. And for years, that barely mattered.

Before the pandemic, the two indexes’ 52-week correlation sat between 0.95 and 0.99 for about 15 years. (A reading of 1.0 means they move in perfect lockstep.)

Today, it’s down to 0.67, the lowest on record. Even in the dot-com bubble, it never fell below 0.85.

A small group of stocks is steering the market, and it has investors thinking about what happens if the Mag 7 stops delivering. Yet the earnings behind the gap tell a different story.

There’s a reason why the market follows these seven companies. And it’s because their profits have pulled away from everyone else’s for years.

We can see this through Uniform Accounting, which strips out the distortions in standard accounting rules to show a company’s real profitability.

Since 2021, Mag 7 names have grown Uniform earnings faster than the rest of the S&P 500 every year. From 2020 through 2025, their combined Uniform earnings nearly tripled. The rest of the index grew 69%.

This year, the gap is widening.

Mag 7 Uniform earnings are on track to grow 47%, their fastest pace since 2021. That means seven companies are expected to deliver more than half of the S&P 500’s total earnings growth in 2026.

The concentration has a logic to it. Stock prices are following the earnings. But the other 493 companies are picking up speed.

In 2023, the rest of the S&P 500 went through an “earnings recession,” which happens when profits decline across a broad swath of companies. Its Uniform earnings fell 4%, even as the Mag 7 kept growing.

Since then, growth has sped up every year. Uniform earnings for the rest of the index rose 6% in 2024 and 7% in 2025. This year, they’re expected to climb 16%. Next year, that acceleration is expected to continue, to 20% growth.

Meanwhile, Mag 7 growth is expected to slow to 7% as it laps this year’s huge jump.

That would make 2027 the first year in more than five years that the rest of the market grows earnings faster than the Mag 7.

Mag 7 stocks have led every year since 2021. Next year, the rest of the market is expected to take the lead.

The market doesn’t even need Mag 6 stocks to crash for this gap to close.

Investors worried about concentration tend to assume the gap closes with the Mag 7 falling back to earth.

Our numbers point to a less painful path. The Mag 7 stocks are still expected to grow next year. The rest of the market is catching up, as 493 companies build on three straight years of faster earnings growth.

When more companies grow their profits, more stocks tend to follow. That’s how the equal-weight index and the S&P 500 start moving together again, with the broader market rising to meet the leaders.

Said another way, the record gap isn’t a reason to stay away from equities, nor should it stop investors from looking at the rest of the market.

After all, that’s where earnings growth is set to be fastest next year.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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