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Investing.com -- Capital Economics expects the S&P 500 to continue its path of concentration, with big-tech firms driving gains even as most other constituents lag.
“We forecast further gains in the U.S. stock market by the end of next year, with the big-tech sectors leading the charge,” the firm wrote in a note.
They explained that on July 15, more than 90% of S&P 500 stocks declined amid fears that tariffs may be fueling inflation.
Yet the index itself fell only about 0.4%, as gains in mega-cap names such as Nvidia (NASDAQ:NVDA) helped offset broader weakness.
“Only about one in six firms did better than the MC index,” Capital Economics said, noting that Nvidia rose on reports that the U.S. may lift restrictions on older chip sales to China.
The firm said this narrowing trend is not new and dates back to the end of 2022.
“The U.S. stock market has become increasingly concentrated,” it wrote, pointing to the rising share of the top 10% of companies in total market capitalization.
While some analysts expect this trend to reverse, Capital Economics disagrees. “We think that’s unlikely if, as we envisage, a bubble in AI continues to inflate,” the note said.
The current rally, it argued, is more earnings-driven than valuation-led, unlike the dotcom era. “Compared to that bubble, one in AI is being inflated more by earnings than by valuations.”
Capital Economics now forecasts the S&P 500 will reach 7,000 by the end of 2026.