The biggest myth in the market just broke

In the spring of 1999, Wall Street reached a consensus. The dot-com rally, once the exclusive property of a handful of Silicon Valley darlings, was finally broadening out. Retailers were getting websites. Manufacturers were becoming “e-businesses.” Regional banks were upgrading their software.

But the irresistible ‘rising tide lifting all boats’ story was just noise before the signal reasserted itself.

Twenty-seven years later, the same consensus is back — different ticker symbols, same mistake…

Since ChatGPT’s debut in November 2022, the S&P 500 — the benchmark index of the 500 largest U.S. companies — has dramatically outperformed the S&P 500 Equal Weight Index.

The standard S&P weights its components by market capitalization, meaning the largest companies by value — the so-called ‘Magnificent 7’: Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), Meta (META), Amazon (AMZN), Alphabet (GOOGL), and Tesla (TSLA) — carry an outsized influence. The Equal Weight version, as the name suggests, gives every included company an identical 0.2% slice.

Same companies, radically different performance.

As you can see in the chart below, the S&P 500 is on a historic win streak of smashing the Equal Weight index.

The divergence between these two indices tells you, in a single picture, everything you need to know about where investor capital is really going…

The AI Market ‘Broadening’ Narrative Just Broke

For a brief moment in late 2025 and early January 2026, the equal weight index actually outperformed.

Small caps started catching bids. The rate-sensitive parts of the market showed signs of life. Cyclicals perked up. And predictably, the financial media erupted with bullishness.

“The rally is finally broadening!” they said. “Small caps are ready to break out!”

CNBC and Bloomberg filled slots with guests sounding supremely confident that the long overdue broadening of one of the most heavily concentrated stock market rallies in history was (finally) here.

They were wrong. The Iran War saw to that.

The fresh geopolitical turmoil led to $90-plus oil, 3%-plus inflation, and a 10-Year Treasury yield above 4.3%. That formed a toxic cocktail for rate-sensitive, margin-thin businesses.

Small caps — which disproportionately carry floating-rate debt — took a hit. Consumer-facing businesses got squeezed from both ends. Healthcare stocks struggled because of higher rates. Financials did, too.

Meanwhile, since the war started, AI stocks have soared to new highs.

Take a look at the following chart, which shows the change in AI stocks — represented by the Global X Artificial Intelligence & Technology ETF (AIQ) — compared to the S&P’s financials and consumer discretionary sectors, as well as the Invesco Leisure and Entertainment ETF (PEJ).