Viewpoint: A welcome loss of concentration in markets…

A welcome loss of concentration in markets…

So, about that broadening in market performance that I flagged a couple of months back…

It was, indeed, the case that there was a notable rotation in the market that began in October and ran until the end of February — over that span, the top 10 stocks by market capitalization in the S&P 500 Index¹ were cumulatively down 6.6%, while all other stocks in the index were up 5.7%. For those four months, the capitalization-weighted S&P 500 was effectively flat (+0.6% price return) while the equal-weighted version of the index² was up 8.9% — this type of market environment with broader performance gains tends to be highly beneficial for active managers’ relative performance (more on this later).

Since the end of February, however, the tide has turned sharply again, thanks to the combination of the impact of geopolitical uncertainties and, more notably, the “artificial intelligence” focus returning to the fore. Over the last three months ended May 31, those top 10 largest stocks that account for 40% of the U.S. large cap benchmark are up 17%, while the remainder of the S&P 500 is up “only” 5.8% — the cap-weighted S&P 500 (+10.2% price return) has taken back its lead over the equal-weighted counterpart (+1.8%).

Contribution to S&P 500 price return
(share of contribution to change in price; U.S. dollar basis)

Source: Guardian Capital LP, based on author’s calculations using data from Bloomberg to May 31, 2026

Note, however, that the concentration story of late is actually much more significant than even this suggests.

Those 10 largest stocks span five sectors (Information Technology, Communication Services, Consumer Discretionary, Consumer Staples and Health Care) and two of these stocks are down since February (Meta and Walmart).

If, however, we look at the stocks making the largest contribution (index weight X return) to overall returns over the last three months, the top 10 contributors account for 90% of the total price gains in the S&P 500 — eight of these stocks are in the Information Technology sector, with five of them in semiconductors, two in hardware and one in software (the other two are in the Consumer Discretionary and Communication Services sectors).

Contribution to S&P 500 price return
(share of contribution to change in price; U.S. dollar basis)

Source: Guardian Capital LP, based on author’s calculations using data from Bloomberg to May 31, 2026

So, the performance gains have been narrow not just across stocks but subsectors and sectors as well, which makes it extremely difficult for active managers to outperform market benchmarks — any portfolio that does not have exposure to those names/subsectors/sectors, or is relatively underweight versus the benchmark, is pretty much guaranteed to underperform. It is not a coincidence that 80% of all U.S. fund managers have underperformed the broad market over the three years ended 2025 (see Report 1a on page 12³; America’s weight in the world index has factored into that number being closer to 90% for Global fund managers⁴) — and has driven continued investment flows into passive⁵ market-tracking investment products (which exacerbates the issue of market concentration, since it means more money flows to the biggest names).

Share of S&P 500 constituents outperforming the Index (LHS); and
S&P 500 Index returns relative to S&P 500 Equal Weight Index (RHS)

*2026 is year-to-May; source: Guardian Capital LP, based on data from Bloomberg and Ned Davis Research

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David Onyett-Jeffries
David Onyett-Jeffries is Vice President, Economics & Multi-Asset Solutions, at Guardian Capital LP (GCLP). He provides macroeconomic guidance to GCLP and its affiliates. Additionally, he is a portfolio manager of GCLP’s multi-asset portfolios and funds and works closely with GCLP’s Directed Outcomes team.

¹ The S&P 500 is an index of 500 stocks designed to reflect the risk/return characteristics of the large-cap US equity universe.
² The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight – or 0.2% of the index total at each quarterly rebalance.
³ SP Global, S&P Dow Jones Indices, SPIVA® U.S. Scorecard, Year-End 2025, Page 12 – Reports Report 1a: Percentage of U.S. Equity Funds Underperforming Their Benchmarks (Based on Absolute Return), June 2, 2026, https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2025.pdf
⁴ S&P Global, SPIVA data, Results by Region, June 2, 2026, https://www.spglobal.com/spdji/en/research-insights/spiva/
⁵ Morningstar, Manager Research, April 2026, US Fund Flows, June 2, 2026, https://www.morningstar.com/content/cs-assets/v3/assets/blt9415ea4cc4157833/bltba7e6025451a8539/6a060b68aa1d130f94cb5b53/April_2026_US_Fund_Flows.pdf

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Published: June 3, 2026