Is The S&P 500 Actually Diversified?

The Macro Institute's Weekly Economic Primer

Author

The Macro Institute
August 03, 2026

Don’t have time to watch the whole video? Here’s 5 Key Takeaways:

🔹The S&P 500 Is Extremely Top Heavy: The top 10 stocks in the S&P 500 currently make up just under 40% of the index. Questioning how an index can be diversified with this level of concentration is one of the most common arguments downplaying the S&P 500’s current diversification.

🔹The S&P 493 Is Outperforming Mag 7: The S&P 493 is currently outperforming the Mag 7 by a significant margin thus far in 2026. This is a great counterargument to the index’s concentration. Does it matter that the index is concentrated if smaller names are carrying the bigger ones?

🔹Market Breadth Has Soared Last Few Months: Nearly 70% of the stocks in the S&P 500 are currently trading above their 200-day moving average. This is up significantly over the last few months from a low of around 42% in March. The average stock in the S&P 500 is working again.

🔹Tech Has Driven Most Of S&P 500 Returns: The Technology sector has delivered nearly two-thirds of the S&P 500’s return in 2026. A great rebuttal to the counterarguments is this fact. The S&P 500 might be diversified by participation, but it has not been by return.

🔹Broad Participation Vs Return Concentration: The key consideration in this debate is if the broad participation in the S&P 500 will protect investors from the return concentration if the AI trade eventually goes awry.

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The Macro Week Ahead

📆 Last Week’s Data Key Takeaways

🔹 The Fed Held Rates As Three Officials Dissented: The Fed held the benchmark federal funds rate at its current target of 3.5%-3.75% for the fifth consecutive meeting. Three FOMC members dissented, each voting in favor of raising the federal funds rate by 25 basis points. The CME FedWatch tool shows a 41.9% chance the Fed will leave rates at their current level in September.

🔹Q2 GDP Slowed To 1.5%, Below Forecasts: Real GDP rose at a 1.5% annual rate in Q2, falling below the 2.1% forecast. However, consumer and business demand accelerated substantially. The headline miss was almost entirely due to international trade and inventory investment noise.

🔹PCE Inflation Cooled Sharply: Headline PCE fell 0.1% in June, as a temporary truce in the war with Iran pulled energy prices lower. June's PCE reading put the index's year-over-year rate at 3.7%, a step down from the 4.1% recorded in May. Things could quickly reverse with the renewal of the Iran conflict in July.

🔹 Consumer Sentiment Signals Diverged: The Conference Board's Consumer Confidence Index fell 1.4 points to 90.8, the third consecutive month consumers grew less upbeat about current conditions. Michigan told a very different story. Michigan Consumer confidence final for July came in at 55.2 vs the 54.0 estimate.

🔹 Real Home Prices Declined: Case-Shiller's 20-city index rose 1.6% year-over-year in May, accelerating from an upwardly revised 1.2% increase in April and exceeding market expectations. However, after adjusting for inflation, home prices declined for a 12th consecutive month, as May's 4.2% inflation rate outpaced nominal home price growth.

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