Is There More Room for US Stocks to Rise? The Rally Is No Longer Driven by AI Giants—S&P 500's 'Broad-Based Growth' Takes Center Stage

On the surface, the recent record highs in US stocks appear to still be driven by a handful of tech giants. However, a deeper look at market structure reveals that the breadth of this rally far exceeds expectations—and this 'broad-based growth' trend has room to expand further.

According to MarketWatch, earlier this year, there was concern that the rally was overly concentrated in a few large-cap tech stocks tied to artificial intelligence (AI). Investors feared that if these stocks pulled back, the broader index would struggle to hold up.

But the latest data shows a clear shift: the number of stocks participating in the rally is steadily increasing.

The market-cap-weighted S&P 500 index closed at a record high last Friday (July 7), marking its best weekly performance since April. It has gained 13.3% year-to-date.

In contrast, the Invesco S&P 500 Equal Weight ETF (RSPF-US), which uses an equal-weighting methodology, rose 15% over the same period, according to Dow Jones market data. This suggests the equal-weight ETF could outperform the market-cap-weighted S&P 500 for the first time since 2022.

Among S&P 500 constituents, 226 stocks—about 45%—have outperformed the broader index this year, the highest proportion since 2022. This marks a shift from the past three years, when only about one-third or fewer stocks beat the index.

Analysts note that this broadening rally indicates index fund returns are no longer reliant solely on a few AI概念股. It also suggests market momentum may stem from broader factors, such as stable corporate earnings and sustained economic growth, rather than AI alone.

The key question is whether this trend can continue.

Richard Flax, Chief Investment Officer at digital wealth manager Moneyfarm, points out that some of the economy’s resilience stems from the spillover effects of AI-related capital spending across the broader economy. This shows AI investment benefits are no longer confined to tech stocks.

This momentum continues to push the S&P 500 to new highs, and some market participants believe there is still room for further gains.

According to FactSet, the market-cap-weighted S&P 500 currently trades at a forward P/E ratio slightly above 20x (based on next 12 months’ earnings). However, Jonathan Curtis, portfolio manager at Franklin Templeton, notes the equal-weight S&P 500 trades at around 17x, close to its 20-year median.

Curtis argues this suggests investors have not fully priced in AI-driven productivity gains for mainstream companies.

He said: 'If you look at the equal-weight index, the market is saying, “I don’t see any productivity gains from AI.” I think that’s wrong—AI is very likely to make the US economy more productive. If investors believe that, they should buy the equal-weight S&P 500 and companies actively adopting AI.'

However, this broadening trend faces a test. Last Friday’s weak US jobs data was followed by key inflation data and earnings reports from several tech giants this week.

Inflation Data in Focus This Week

After the jobs report, investor attention shifts to inflation data this week.

Despite a drop in US employment in July, inflation remains stubbornly above the Federal Reserve’s 2% target for the third consecutive year.

Following the weak jobs report, market expectations for a Fed rate hike at its September 16 meeting cooled slightly—but these expectations could shift again with this week’s data.

Brent Wilsey, Chief Investment Officer at Wilsey Asset Management, said the weak nonfarm payrolls 'probably won’t change the Fed’s stance,' but it 'has increased the importance' of this week’s data.

He noted that Wednesday morning’s (July 12) release of the July Consumer Price Index (CPI) could rebound due to higher oil prices in the second half of the month.

Market expectations forecast CPI to rise 0.3% month-over-month (vs. flat prior), with a year-over-year increase of 3.4%. The Producer Price Index (PPI), due Thursday (July 13), is expected to rise 0.2% month-over-month, after a 0.3% decline the previous month.

Earnings Season Winding Down—A Few Key Names Remain

With 88% of S&P 500 companies having reported earnings, this week’s calendar is lighter—but a few key names still stand out.

Optical communications firm Lumentum (LITE-US) is set to report earnings after market close on Tuesday (July 11). Though much smaller than mega-cap tech firms, the stock has surged 141.5% this year—ranking as the 8th best performer in the S&P 500—making its earnings highly anticipated.

FactSet estimates its earnings per share will more than double year-over-year to $2.97, with revenue expected to double to $987.7 million.

Cisco Systems (CSCO-US) is scheduled to report after market close on Wednesday. FactSet forecasts EPS will rise from $0.99 to $1.17 year-over-year, with analysts expecting revenue to grow 14.6% to $16.82 billion.