Is the 2024 Concentration Scare Back?

How Investors Should View Narrowing Market Breadth

In the past six weeks or so, we’ve seen a sharp narrowing of market breadth in the U.S., which means fewer individual stocks are participating in the market’s gains—even as major indexes continue trading near record highs. September was particularly narrow. Technology gained approximately 5.5%, while nine S&P 500 sectors finished the month in negative territory.

As breadth has narrowed, familiar fears have returned.

Some readers may recall 2024, when the “Magnificent Seven” were dominating returns and many worried the market was over-concentrated in a handful of tech behemoths. Today, fewer than half of S&P 500 stocks are trading above their 200-day moving averages, and more than 200 companies in the index have posted negative returns in 2026. As I write, the median stock is up only about 4%, compared with a roughly 14% gain for the overall S&P 500. ¹

But the reckoning for over-concentration never really arrived in 2024, and I don’t think investors should read too much into the narrowing trend we’ve seen in recent weeks.

For one, the equal-weight S&P 500, which gives each company the same influence regardless of its market capitalization, has generated a total return of approximately 12.5% this year. That trails the return for the market-cap-weighted S&P 500 by a couple of percentage points, but it’s still a substantial gain. In my view, this speaks to the ability to diversify away some of the over-concentration risk.

There is also the fact that while price breadth has narrowed in the equity market over the past several weeks, earnings breadth is strong and broadening.

According to our colleagues at Zacks Investment Research, S&P 500 earnings are expected to grow 24.3% year-over-year in the third quarter, on 11.5% higher revenues. Removing the Technology sector reduces expected Q3 earnings growth from 24.3% to 14.2%, which is a meaningful step down but still points to quite strong overall earnings growth—particularly considering the higher borrowing costs and energy prices I’ve written about recently.²

All told, Zacks currently expects 15 of its 16 sectors to report positive year-over-year earnings growth in Q3, with six sectors projected to generate double-digit increases. Outside Technology, for instance, Industrial Products earnings are expected to rise 13.3%, Transportation 10.9%, and Basic Materials 29.7%.

The earnings outlook also continues to improve, which is noteworthy because analysts typically lower their estimates as a quarter progresses. Indeed, over the past decade, S&P 500 earnings estimates have declined by an average of 2.1% during the first two months of a quarter. But recently we’ve seen the opposite, with upward revisions continuing into Q4. According to Zacks Investment Research, positive Q4 revisions are showing up in seven sectors, including Aerospace, Construction, Industrials, Finance, and Transportation.

Remember that stock prices reflect expectations for the future, and investors can become more or less enthusiastic about particular companies and sectors very quickly. For instance, we saw capital rotate into small-caps earlier this year, followed by a renewed preference for mega-cap Technology as investors reassessed interest rates, energy costs, and AI opportunities.

But earnings trends tend to evolve more gradually, and at least for now, they continue to show that companies outside the market’s largest Technology names are growing profits. This again argues for a broadly diversified approach.

Q3 earnings season is getting underway this week, meaning we’ll soon have a much clearer picture of whether analysts’ expectations are being met. I’ll be paying particular attention to results and management commentary outside Technology, where the gap between stock-price performance and expected earnings growth is especially interesting.

Bottom Line for Investors

Narrow market leadership is worth watching, particularly when some of the largest companies account for an outsized share of index returns. But I think investors should distinguish between weakness in stock prices and weakness in corporate fundamentals. The two can move in different directions for extended periods, as we’ve seen throughout this year.

For now, the earnings outlook gives me reason to remain constructive. Even excluding Technology, our analysts are projecting double-digit earnings growth across other sectors in the S&P 500. That suggests a broader foundation of corporate profitability than recent price action might imply.

Disclosure

1 Reuters. October 12, 2026. “Wall Street's Big But Narrow Rally: 4 in 10 S&P Stocks Are Down this Year.”

2 Zacks Investment Research. October 9, 2026. “Estimates Keep Rising as Q3 Earnings Season Takes Center Stage.”

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