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Fresh breadth? Market concentration in 3 charts
Diana Wagner
Charles Ellwein
Steve Fox
October 15, 2025
With the S&P 500 Index near record highs, has the U.S. moved past peak dominance for the Magnificent Seven ("Mag 7") group of stocks? It appears so, and it represents a healthy move away from the extreme concentration that raised concerns about risks to investor portfolios.
After three years of the Mag 7 accounting for a majority of the S&P 500’s annual return, more companies are now contributing; by September 30, non-Mag 7 stocks represented 59% of this year's return.
Fresh breadth may support the S&P 500’s rebound after its early 2025 selloff. The index has surged 36% since hitting an April 8 low. Rising valuations among companies in the index and more clarity on tariffs and interest rate cuts could help lift the U.S. equities market, which has trailed those in Europe and elsewhere.
“Heading into 2026, I think there are tailwinds that should drive earnings growth and support the market, such as stimulus from the tax bill and more policy certainty,” says Diana Wagner, equity portfolio manager at Capital Group. “There’s plenty of opportunity outside the Mag 7, and I think the broadening that we have started to see this year is going to continue.”
Market breadth is widening
Market breadth is on the rise since touching a low in June 2023, when the Mag 7 dominated returns for the S&P 500.
On a rolling six-month basis through June 30, 2025, the percentage of stocks that notched higher returns than the Mag 7 median reached 51%, or 251 securities. That’s up from 1% in June 2023, representing just five companies.
Another telling sign: Since April 2, when the White House unveiled proposed tariffs on other countries, the percentage of stocks trading above their 200-day moving average climbed from 16% to 64% by the end of last month.
June 2023 marked peak concentration
Sources: Capital Group, Bloomberg Index Services Ltd., Morningstar, Standard & Poor's. Return calculations reflect annualized total returns over periods in which the U.S. Federal Reserve had stopped raising rates and began to actively cut rates, measured from the peak federal funds rate target to the lowest federal funds rate target for each cycle. Specific easing cycles include August 1984 to August 1986 (non-recessionary), May 1989 to September 1992 (recessionary), February 1995 to January 1996 (non-recessionary), March 1997 to November 1998 (non-recessionary), May 2000 to June 2003 (recessionary), June 2006 to December 2008 (recessionary) and December 2018 to March 2020 (recessionary). Benchmarks used are the S&P 500 Index (U.S. stocks), MSCI World ex USA Index (international stocks), Bloomberg U.S. Aggregate Bond Index (U.S. bonds) and the average investment rate of 3-month U.S. Treasury Bills (cash). As of June 30, 2025
Nvidia is changing the equation
The meteoric rise of Nvidia, which has a near-monopoly on data centre semiconductors fuelling the AI boom, has catapulted the likes of Apple, Microsoft and Alphabet (parent of Google) to claim the title as the world’s most valuable company at US$4.5 trillion.
Market breadth would potentially be wider if not for Nvidia’s dominance. Year to date through September 30, Nvidia contributed 20% of the S&P 500’s total return. Nvidia’s dominance flattened the impact of other Mag 7 stocks, barring Microsoft at 14%.
S&P 500 ex-Mag 7 are larger contributors to benchmark return
Source: FactSet. Rest of Mag 7 represents Alphabet, Amazon, Apple, Meta and Tesla. S&P 500 ex-Mag 7 represents the other 493 companies in the index. Data as of September 30, 2025.
Valuations are less divergent
After significant divergence two years ago, forward price-to-earnings parity is slowly increasing, indicating that long-term growth projections are edging closer. The Mag 7 stocks traded at 31 times forward earnings on a 12-month basis as of September 30 vs. 20 times for the other 493 companies.
“What appears to be unfolding is a stabilization in optimism for the Mag 7 and a pickup in confidence for the rest of the market,” says Steve Fox, a client portfolio solutions director at Capital Group. “Investors are demonstrating greater willingness to invest in the earnings potential of others.”
“This suggests a more balanced risk/reward profile between mega-cap tech and the broader market, making valuation discipline increasingly important.”
Valuations outside Mag 7 have increased
Source: FactSet. The forward price-to-earnings (P/E) ratio is computed by dividing the stock price by the consensus forward 12-month earnings estimates. Forward P/E ratio for the Mag 7 is the market-cap weighted average. Data as of September 30, 2025.
Where the market may broaden
Market pressures — like AI disruption, manufacturing slowdowns outside data centre development and higher interest rates — have compressed valuations in some sectors.
Take companies whose stock prices have sold off on AI euphoria, such as information technology consulting firms and software providers. They could benefit from companies planning to incorporate agentic AI or harness data embedded in their software systems.
The AI investment cycle is expected to be massive, potentially growing the opportunity set of companies over the next several years.
Nvidia, for example, projects cumulative spending of US$4 trillion by 2030. If so, the magnitude of spending could benefit select utilities that can support energy demand for data centres, along with semiconductor firms and lesser-known companies providing electrical, mechanical and plumbing equipment.
However, within industrials, the AI boom and tariff uncertainties have created a divergence in stock prices and valuations. Many end markets have struggled since 2023, and transportation, rental equipment and containerboard businesses are looking for efficiencies to improve margins.
“I’m interested in what I call self-help situations where companies can take steps to improve their margin structure. If successful, the return profile of these companies could look more attractive when growth resumes,” says Charles Ellwein, equity portfolio manager for Capital Group Capital Income BuilderTM (Canada).
If the market continues to broaden, banks may take part, he adds. Regulators are weighing a plan to loosen capital requirements which could increase lending across industries. Banks have faced tighter restrictions since the 2008 financial crisis.
“I’m fairly diverse across sectors and not overly concentrated in my portfolios,” Ellwein says. “We could experience new breadth in the market, whether it be improving scenarios outside of AI-related companies or a rebound in the industrial economy. Market broadening is an ideal environment for stock pickers like me.”
Learn more about
The Magnificent Seven stocks consist of Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla.
S&P 500 Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks.
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