Most of the Market’s Biggest Stocks Are Lagging. AI Is Keeping the Rally Going
The market’s heaviest hitters have spent a lot of time on the sidelines. Megacap tech gets much of the credit for pushing indexes to records, but most of the giants are actually lagging. With earnings season days away and bond yields at 24-year highs, that gap matters.
Leaders in name only: Just four of the 13 companies worth at least $1T have outperformed the S&P 500 this year. Memory and AI chip demand did the heavy lifting, while the rest of the club clustered around or below the index. "For a cohort that has supposedly led, the [year to date] performance of the individual members hasn't been very impressive," Bespoke Investment Group analysts wrote.
- Micron has surged nearly 275% and Advanced Micro Devices just over 200% on AI chip demand.
- Nvidia is up nearly 30% and Apple ~23%, against a 14.4% gain for the index.
Trouble Under the Hood
The equal-weighted S&P 500 sits more than 5% below its record high, while only a third of constituents have rallied since the September low. Goldman Sachs expects AI infrastructure names to deliver over half of the index’s third-quarter EPS growth, while rate-sensitive corners keep sliding. Bank of America analysts warn that “low breadth is a classic feature of bubbles building and typically doesn’t stop until they pop.”
- The utilities sub-index is down 7.5% since August, while consumer discretionary has fallen roughly 3% as higher yields weigh on rate-sensitive sectors.
- The Russell 2000 has fallen more than 9% from its record, nearing correction territory as higher borrowing costs put more pressure on small-cap balance sheets.
The catch-up trade: Bespoke flags six trillion-dollar names as overbought, including Meta Platforms, Microsoft, and Tesla. Barron’s technical analyst Doug Busch is less concerned, arguing that “strong stocks often keep getting stronger when a firm trend is in place” and forecasting Apple could reach $400 by early 2027. The bigger threat may be the 10-year yield which has climbed to its highest since early 2002. If borrowing costs keep rising, the four winners may struggle to carry the other nine.
