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The start of 2026 has marked a major shift away from “Magnificent Seven” technology and stocks.
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We are starting to see cyclicals and small caps take over as investors worry about the deteriorating labor market and geopolitics.
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The S&P 500’s equal weighting allows it to better capture the current market rotation, but maintains its exposure to large caps.
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10 stocks we like better than the Invesco S&P 500 Equal Weight ETF ›
It’s still early in 2026, but so far, one of the biggest stories in the market has been its improving breadth. Tech Stocks Are Lagging S&P 500 (SNPINDEX: ^GSPC)while the industrial, energy and defensive sectors are outperforming the index by a wide margin. Small caps are already outperforming large caps by more than 7% through January 20, 2026.
Investors who have been overweighting technology and “Magnificent Seven” stocks in their portfolios may need to review their strategies. Concerns about the slowdown in the labor market and the geopolitical context are creating enough uncertainty that investors no longer seem willing to raise valuations and focus only on growth.
If moving into small caps isn’t your thing, the Invesco S&P 500 Equal Weight ETF (NYSEMKT:RSP) could be. It does exactly what you would think: it invests in all components of the S&P 500 in equal allocations. Charging just 0.20% annually is a good way to maintain your large-cap exposure but take advantage of other areas of the market beyond technology.
The obvious advantage of an equal-weight S&P 500 is that it takes it away from the serious Magnificent Seven stock concentration problem that currently exists with the traditional index. Those seven companies represent about 35% of the S&P 500. That largely depends on the success of just a handful of companies.
The S&P 500 is already quite expensive. It currently trades at around 22 times future earnings expectations, near its highest level since the tech bubble. Shares of the Magnificent Seven collectively trade at around 27 times earnings. It’s not as high as in the past, and there’s been strong earnings growth that has helped support that valuation, but it suggests this stock is priced perfectly.
If something changes in the background or momentum starts to slow, tech stocks could quickly start to underperform. I think we’re seeing that happen right now.
Technology exposure still exists in the equally weighted S&P 500, but it is a much more moderate 13% of the portfolio, making it only the third-largest holding in the sector. Industrials (16%), financials (15%), healthcare (12%) and consumer discretionary (10%) round out the top five sectors. Investors in this fund get much more comprehensive exposure to cyclical and defensive sectors, as well as popular growth areas of the market.