With mega caps slowing down since the tail end of 2025, has the reign of the the largest stocks finally come to an end?
One of the most iconic phrases in HBO’s hit series The Wire comes from detective Lester Freeman when he says, “all the pieces matter,” reflecting how even small aspects help put together a larger picture or system. That same four-word phrase applies to markets as well, as the strength of equities is a function of the contributions from many different areas, with broad-based contributions usually being healthier than those at the hands of just a few names. For the first time in a while, it looks like all the pieces of the market are starting to matter.
Unlike the last few months, the largest stocks played a much larger role in recent years, and no pieces were more important than the “Magnificent Seven.” The Roundhill Magnificent Seven ETF (MAGS) has gained 160% since its inception in April of 2023, more than quadrupling the 37% gain of the “average” stock, as represented by the Invesco S&P 500 Equal Weight ETF (RSP). However, the last several months have seen things shift, with the other 493 constituents of the S&P 500 mattering more. Since the start of the year, the RSP has risen a solid 4.1%. Meanwhile, MAGS is down -3.5% YTD and is 8% away from its all-time high in October. The recent slowdown caused the fund to lose near-term market relative strength versus SPXEWI for the first time since April, dropping its fund score down to a middling 3.92, marking a departure from its strength during most of this bull market.
Additionally, it hasn’t just been the largest seven stocks that have underperformed the market. The Invesco S&P 500 Top 50 ETF (XLG) is also down -2.3% YTD. The last ten weeks of action have been even weaker, as XLG is down nearly 3%. Conversely, RSP gained 4.85% over that same period, meaning mega cap stocks have underperformed the average stock by 7.8% during that span. That number marks the worst ten-week excess return for XLG since September of 2024 matching similar underperformance from last year’s Tariff Tantrum. Thankfully, those previous two instances saw rebounds in favor of the largest stocks, but the recent slowdown of mega caps does warrant some caution for the group.
The fate of mega caps and technology-focused areas are somewhat intertwined, with the largest companies heavily concentrated in technology and communication services. The two groups make up 60% of XLG while equally weighted RSP has a much lower ~15% allocation to the sectors. As a result, weakness in mega caps has also extended to the two sectors too. Both sectors remain atop DALI but hold less near-term strength than their other leading peers like Industrials, as we explored last week.
Despite movement, those two leading sectors and the broader mega cap space hold the most long-term relative strength of any groups. For reference, every member of the Mag Seven has at least a 3 TA score, with Meta Platforms (META) being the only name below a 4. Additionally, the average stock has been pushed into overbought territory in the near-term, with RSP trading near the top of its ten-week trading band, indicating the potential for cooling down over the next couple of weeks. Meanwhile, XLG holds an OBOS reading of -30%, with select names like Apple (AAPL) trading in even more oversold territory despite long-term strength. Overall, mega caps and technology areas will remain points of emphasis until the other 493 stocks sustain their performance for long enough to claim market leadership.
