It's still early in 2026, but so far, one of the market's biggest stories has been improved market breadth. Tech stocks are lagging the S&P 500 (^GSPC 1.52%), while industrials, energy, and defensive sectors are all beating the index by a wide margin. Small caps are already beating large caps by more than 7% through Jan. 20, 2026.
Investors who have been overweighting tech and the "Magnificent Seven" stocks in their portfolios might need to revisit their strategies. Concerns around the slowing labor market and the geopolitical backdrop are creating enough uncertainty that investors appear no longer willing to bid up valuations and focus only on growth.
If pivoting into small caps isn't quite your thing, the Invesco S&P 500 Equal Weight ETF (RSP 1.55%) might be. It does exactly what you'd think -- invests in all S&P 500 components in equal allotments. Charging just 0.20% annually, it's a good way to keep your large-cap exposure but take advantage of other areas of the market beyond tech.
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The Invesco S&P 500 Equal Weight ETF addresses the mega-cap concentration problem
The obvious advantage of an equal-weight S&P 500 is that it gets you away from the heavy Magnificent Seven stock concentration issue that currently exists with the traditional index. Those seven companies account for roughly 35% of the S&P 500. That's a lot riding on the success of just a handful of companies.
The S&P 500 is expensive enough as it is. It currently trades at around 22 times forward earnings expectations, nearly its highest level since the tech bubble. The Magnificent Seven stocks collectively trade at around 27 times earnings. That's not as high as it's been in the past, and there has been strong earnings growth helping to support that valuation, but it does suggest that these stocks are priced for perfection.
If anything changes in the background or momentum begins to slow, tech stocks could quickly begin underperforming. I think we're seeing that happen right now.
Equal-weight funds benefit from improving market breadth
Tech exposure still exists in the equal-weight S&P 500, but it's a much more subdued 13% of the portfolio, making it only the third-largest sector holding. Industrials (16%), financials (15%), healthcare (12%), and consumer discretionary (10%) round out the top 5 sectors. Investors in this fund get much more rounded-out exposure to cyclicals and defensive sectors in addition to the popular growth areas of the market.
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The greater emphasis on some of the more midsize companies within the index can also help. Small-cap outperformance tends to spill over into the mid-cap group, and that can also help lift performance beyond just a rotation out of tech.
If the market rotation that we've seen kick off 2026 has legs, I really like the Invesco S&P 500 Equal Weight ETF as an option. Its broader large-cap exposure could quickly capture where the market appears to be heading.
