By Martin Baccardax

U.S. equity markets are going to need significantly more help if the S&P 500 is to wean itself from reliance on megacap tech giants and ride the gains tied to what is still the very early stages of a rotation into so-called real economy stocks.

Non-tech sectors such as energy, consumer staples, materials, and industrials have far outpaced the gains in the three sectors dominated by megacap tech stocks -- information technology, communications services, and consumer discretionary -- since the start of the year, but have yet to power sustained gains for S&P 500 over the same period.

The energy sector is up nearly 20% on the year, with materials rising 14% and staples up 13%. The broader benchmark, however, has only gained about 1.7%.

"Markets are in a period of healthy rotation, and near-term skepticism about AI (which is probably justified given valuations in certain pockets) isn't necessarily causing broader market disruptions at the moment," said Anthony Saglimbene, chief market strategist at Ameriprise.

"And a more diverse set of sectors is helping broader averages like the S&P 500 tread water while near- and intermediate-term Tech dynamics play out," he added.

That dynamic largely reflects the heavy weighting megacap tech stocks hold within the S&P 500, and how little impact even a strong session for non-tech leaders can have on overall index performance.

The biggest energy stock, for example, is Exxon Mobil, by any measure a global giant in the field with a market value of around $627 billion. But that's still just a fraction of the roughly $3.3 trillion average value of the six largest U.S.-based tech stocks: Nvidia, Apple, Alphabet, Microsoft, Amazon, and Meta Platforms.

That effectively means that even amid Exxon's impressive 25% gain so far this year, the stock contributes only a modest boost to the index, adding around 3.9 points to the S&P 500 for each 1.5% average daily gain.

Nvidia, by contrast, adds roughly 5.1 points to the index for every 1% move, with Apple contributing 4.4 points and Microsoft 3.4 points. In total, a 1% gain across the six largest tech stocks lifts the S&P 500 by about 19.4 points.

The six biggest non-tech stocks -- Berkshire Hathaway, Walmart, Eli Lilly, JPMorgan Chase, Exxon, and Visa -- would collectively add just 5.7 points if each stock were to rise by 1% on a given session.

In fact, it would take 66 non-tech stocks -- extending down the market-cap rankings to Intuit Inc., each rising 1% on the day, to match the point contribution by the Big Six cohort.

That kind of day-to-day influence is difficult to challenge -- especially in a market environment clouded by uncertainty around the Federal Reserve's interest rate policy, the fate of President Donald Trump's tariff regime, a fatigued consumer in a weakening labor market, and soaring commodity prices that could eventually eat into non-tech profit margins.

Furthermore, Bank of America data suggests that while broader market participation has improved, AI- and tech-related names continue to see larger increases in institutional ownership than non-tech constituents of the S&P 500.

That has left investor exposure to the biggest 50 stocks, relative to the broader benchmark, near all-time highs.

"The broadening is just beginning," said BofA analysts led by Savita Subramanian. "Years of narrow, large cap leadership have forced active investors into mega caps, leaving the average stock out in the cold -- it's 20% underweight, and owned by a paltry 10% of funds on average."

Ongoing moves into non-tech stocks could eventually lift index gains, but given the current market weights of the largest tech names, that process is likely to be slow, requiring sustained performance and earnings growth to meaningfully shift leadership.

"We are tactically leaning into the rotation but think a shift in EPS growth leadership back toward value and the rest of the market is needed for it to stick," said Loria Calvasina, head of U.S. equity strategy at RBC Capital Markets.

"Last week's weak job-related data points also complicated the leadership rotation thesis by calling into question the health of the U.S. economy, which has been a core part of the bull thesis on the broader equity market and one rationale for rotating away from secular growth and into more cyclical areas," she added. "We see the current reporting season as a test for the ability of the rotation trade to persist."

Write to Martin Baccardax at martin.baccardax@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 10, 2026 15:13 ET (20:13 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.