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Wall Street’s rebound since late March has been driven by the smallest number of stocks on record, pushing US market concentration to an all-time high and prompting warnings about the “fragility” of the rally.
The S&P 500 index has soared more than 12 per cent since the start of April, when news of a ceasefire in the Middle East war sparked a storming rally, propelled largely by a handful of Big Tech stocks.
Analysts at UBS said that a measure of how many stocks were materially contributing to the index’s performance — so-called “effective constituents” — hit a record low of 42 last week, far below the level of about 100 that has been typical in recent decades.
“What looks like broad market resilience is, to a large extent, a small group of megacap technology and AI stocks pulling the index higher, while much of the rest of the market has had a more difficult period,” said Valérie Noël, head of trading at Syz Bank.
“That raises fragility risk,” she added. “If sentiment towards AI-linked names reverses, the downside . . . could be significant.”
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Just five tech stocks — Alphabet, Nvidia, Amazon, Broadcom and Apple — have accounted for more than half of the S&P’s recent gains, ending a period at the start of this year when investors hailed a broadening of stock market returns.
Global investors came into 2026 betting that earnings at this decade’s stock market laggards, such as supermarkets, housebuilders and miners, would start to converge with the Big Tech giants, prompting a Wall Street rotation into “anything but tech”.
But Madeleine Ronner, a portfolio manager at asset manager DWS, said the Middle East conflict had “definitely put a dent” in that thesis, with soaring energy prices damaging earnings growth in the non-tech sectors.
“It looks like this could be a year where [the stock market] is much more concentrated again,” she said, adding that “the longer this [war] goes on, the worse the possibility for broadening out gets”.
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Before the conflict began, the equal-weight version of the S&P powered ahead of the more commonly used index, in which bigger companies are weighted more heavily.
But that pattern has reversed during the market rebound, with the S&P, which is dominated by Silicon Valley’s megacap tech companies, performing far better than its equal-weight counterpart.
The Philadelphia Semiconductor index has surged more than 40 per cent since the war started, with chipmaker Intel up more than 130 per cent and memory giant Sandisk up 100 per cent.
Arun Sai, senior multi-asset strategist at Pictet Asset Management, said the broadening thesis at the start of this year was based on a bet that “2026 could be a boom year” for the wider US economy.
But the energy shock had derailed that assumption, he said, adding that investors were now backing the “certainty” of Big Tech earnings over the “uncertainty of macro . . . in the fog of war”.
The S&P 500 technology sector has notched up more than 40 per cent earnings growth in the first quarter, FactSet data shows, compared with just over 1 per cent in financials and a contraction in healthcare company earnings.
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Analysts on Wall Street have been upgrading their 2026 earnings estimates for energy and technology companies, but consumer and materials groups, hit harder by higher energy prices, have seen downgrades.
Beata Manthey, head of global equities strategy at Citi, said: “It worries us that [earnings] are narrowing” but “while the Strait [of Hormuz] is closed, it’s really hard to argue that you are going to have broad-based earnings upgrades”.
Some analysts warn that the very narrow rally increases risks of a sharp sell-off if the tech sector stumbles.
Ben Snider, chief US equity strategist at Goldman Sachs, wrote to clients last week that “sharply narrowing breadth signals drawdown risk” for the S&P 500 in the near term, after the recent rally had “helped push US equity market breadth to one of its narrowest levels in recent decades”.
