- The S&P 500 has climbed 14% this year, but gains remain concentrated in a handful of AI and semiconductor stocks as more than 40% of its constituents decline.
The S&P 500's rally to record highs is masking a weaker performance across much of the US stock market, with more than four in 10 companies in the benchmark trading below their levels at the start of 2026.
The index has gained about 14% this year, but the median S&P 500 stock is up just 4%, highlighting how a small group of high-performing companies has contributed disproportionately to the market's advance. A quarter of index constituents have fallen more than 11%, Reuters reported.
The gap between the index and its constituents reflects the influence of large technology and semiconductor companies, whose strong performance has helped lift the market-weighted benchmark even as many other stocks struggle.
The divergence has also drawn attention from Wall Street strategists. In an October 12 analysis, The Wall Street Journal examined why narrow stock-market rallies are not unusual and when investors should become concerned.
AI and Semiconductor Stocks Are Driving the S&P 500 Higher
The S&P 500 weights companies according to their market capitalization, meaning its largest constituents have a greater influence on the index's performance than smaller members. When a handful of mega-cap companies rise sharply, the benchmark can advance even if a large portion of its stocks decline.
Semiconductor companies have been among the market's strongest performers this year. SanDisk Corp. (NASDAQ: SNDK), Micron Technology Inc. (NASDAQ: MU) and Nvidia Corp. (NASDAQ: NVDA) have benefited from investor demand for companies exposed to artificial intelligence infrastructure and computing.
The spending required to build AI data centers has supported demand for advanced chips, memory and networking equipment. Investors have rewarded companies expected to benefit from that expansion, while businesses with less direct exposure to the AI trade have struggled to keep pace.
The concentration raises questions about how durable the broader rally is if leadership narrows further. A decline in a few large technology stocks could have an outsized effect on the S&P 500, even if other companies remain relatively stable.
That does not necessarily mean the index is about to fall. Strong earnings growth among market leaders can justify higher share prices, and narrow rallies can persist for extended periods. However, the gap between index performance and the typical constituent's return makes it harder to use the headline index alone to assess market conditions.
Investors tracking the AI trade can see the contrast in semiconductor earnings expectations, where projected profit growth has outpaced the broader market. The key question is whether earnings growth will eventually spread to more companies or remain concentrated among a limited number of beneficiaries.
Weak Market Breadth Raises Questions About the Rally
Market breadth measures how widely gains or losses are distributed among stocks. When most constituents rise alongside an index, the rally is considered broad-based. When the index climbs while many members fall, breadth weakens.
The latest figures point to a market in which headline performance does not reflect the experience of a typical stock. Fewer than half of S&P 500 constituents are trading above their 200-day moving averages, a sign that the index's advance has not been matched by widespread price strength, Reuters reported.
Investors are also contending with higher borrowing costs and pressure on sectors that are sensitive to interest rates. Companies in real estate, consumer-related industries and other areas outside the AI investment theme can face headwinds when financing costs rise or economic uncertainty increases.
Treasury yields are particularly important because they influence borrowing costs and the valuations investors assign to future earnings. Higher yields can make long-duration growth stocks less attractive and increase financing pressure on companies that depend on debt. Wealthier Today's analysis of why rising bond yields matter for dividend stocks and growth investors explores that relationship.
For investors, weak breadth can be a reason to look beyond the S&P 500's headline return. Equal-weighted indexes, sector performance and the share of companies trading above key moving averages can help show whether gains are spreading or becoming more concentrated.
The divergence may also create opportunities if fundamentally sound companies have fallen despite stable earnings outlooks. But a declining share price alone does not make a stock cheap, and investors still need to assess valuations, balance sheets and profit expectations.
The market's next phase will depend in part on whether AI leaders continue delivering the earnings growth investors expect and whether participation broadens to other sectors. For now, the S&P 500's 14% advance tells only part of the story: a substantial share of its constituents are losing ground even as the benchmark reaches new highs.