The market is broadening and it’s time to look beyond megacap tech
We’re now in the last two weeks of August, and investors need to be cautious this time of year. In the summer doldrums, though the noise and headline remain loud, they’re often overstated. I remember last summer rushing home from Long Beach Island, N.J. because U.S. bond yields plummeted along with the U.S. dollar/Japanese yen in reaction to a few weak nonfarm payrolls prints. Nothing came of it. I should have stayed at the beach. Tuesday’s article is another cautionary tale to not read too much into this market’s conflicting cross currents and to take it all with a grain of salt. In fact, if you’re reading this while looking at [ocean] currents with grains of [margarita] salt on your glass, stay put. Finish this article of course, and tune into CNBC for a while to get caught up, but enjoy vacation. There’s a lot of talk about rates moving up, U.S. deficit challenges, inflationary pressures and more. But as I wrote in this column two weeks ago, I don’t think recent inflationary readings are enough to justify the start of a tightening cycle. The chart below shows signs of the iShares value/growth and Vanguard value/growth ratio turning higher just recently, while the U.S. 10-year Treasury yield , in gray, is pressed against the top end of the range. The reason I put this chart first is because I don’t think it’s the move higher in rates that causes a definitive rotation away from growth and into value. To illustrate how “confused” this market is, take a look at the year-to-date sector SPDR percent change. Energy and technology have been going at it to battle for this year’s leader and just a few weeks ago energy pulled definitively ahead with a 42% year-to-date advance, versus tech’s 29% gain. But the part to focus on is the State Street SPDR S & P 500 ETF Trust’s (SPY) roughly 13% year-to-date gain surrounded by the other nine sectors that are more closely grouped around the benchmark S & P 500. The point of this article is to illustrate that this secular bull market is ongoing and is not being threatened by higher rates or some great rotation out of growth. It’s becoming more widespread with participation from the leading equities in sectors other than tech and energy. Energy is only about 3.5% of the S & P 500 weighting while technology is about 38%. There is only a small contribution to the S & P 500’s gains on the year from energy because these companies are such a small part of this economy in terms of market capitalization. Technology, however, can be credited for about 80% of the gains on the S & P 500 this year. That may be about to change. Take a look at the market cap weighted S & P 500/ equal weighted S & P 500 ratio (SPY/RSP). The ratio double-topped in Q4 of 2025 and Q2 of 2026 and is now trading down to test/threaten the gray dashed uptrend line from 2023. Using the same analysis of the cap weighted Invesco QQQ Trust (QQQ) divided by the equal weight First Trust Nasdaq-100 Select Equal Weight ETF (QQEW) we see the same uptrend has been broken. A third illustration of this theme is the Roundhill Magnificent Seven ETF (MAGS) divided into the equal weight QQEW. Remember, this ratio chart moving lower means the numerator (MAGS) is weakening relative to the denominator (QQEW). This also means that equal weight NDX 100 (QQEW) is relatively stronger than the MAGS. They both could be rallying on an absolute basis with the ratio falling — meaning QQEW is moving higher on a relative basis compared to MAGS. They both could be selling off on an absolute basis with the ratio falling, meaning QQEW is holding in better than MAGS. Pulling these three ratio charts together shows that the mega/large caps are not currently leading this bull market and the prudent active investor needs to gain exposure to sub-megacap names. We’re currently 2X the weighting in energy our growth portfolio, and almost 3X the weighting in our equity income portfolio. As we’re preparing to rebalance and reallocate our equity portfolios for our investors with the goal of providing alpha, we need to look beyond the MAG7 and hyperscalers for the leading fundamental and technical stocks within the other nine sectors. -Todd Gordon, Founder of Inside Edge Capital, LLC We offer active portfolio management and financial planning for retail investors, as well as regular market updates like the idea presented above. Visit us at https://www.insideedgecapital.com/cnbc DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
