The Market is Broadening in Pockets, Which May Favor a More Tactical Approach

For the past several years, market leadership has largely been confined to a small group of mega-cap tech stocks tied closely to the artificial intelligence buildout. Readers have seen the stats before: the 10 largest stocks now represent close to 40% of the S&P 500, versus 19% at the end of 2010.

In this kind of environment, owning a broad U.S. index often meant owning a handful of dominant names. And for a time, that strategy worked just fine. Big tech stocks dominated in size and performance, and they pulled broad markets higher.¹

But markets rarely stay that concentrated indefinitely, and there are growing signs that the current cycle may be entering a new phase—one driven by fundamental shifts.

In recent quarters, we’ve seen a narrowing earnings growth gap between the “Magnificent 7” and the rest of the market in 2026. The remaining 493 S&P 500 companies are expected to reach double-digit earnings growth for the first time in several years, which means the opportunity set may be naturally expanding beyond a narrow group of stocks.

A Better Way Forward for Passive Investors

Passive investing using ETFs has become popular, allowing virtually every investor to participate in the stock market with an ETF index fund that tracks the S&P 500. Unfortunately, these funds make it difficult to beat the market—because an index fund essentially is the market.

Zacks Advantage offers a better way forward: We have always been committed to a research-driven investment process, and we have refined our active investment experience to optimize the passive investment realm. Our actively managed robo advisor offers:

• Targeted asset allocation
• Automatic diversification
• Built-in discipline
• Simplified investing – with low fees!

Learn more with our free guide, A Better Way Forward: Actively Managing Passive Index Funds. ²

This is where the titular “broadening in pockets” comes into play. The rotation has not been very orderly, with investors reallocating away from technology while simultaneously increasing exposure to both cyclical and defensive sectors—an unusual pairing that includes areas like industrials and energy alongside staples and utilities. At the same time, value has been outperforming growth and quality, even though earnings momentum for technology has remained relatively strong.

What we’re seeing here may be telling. It suggests investors are not simply rotating out of one leadership group and into another with a clear pattern or narrative. Instead, they are repositioning across a wider range of sectors and factors as the market tests a more fragmented setup. In other words, leadership is broadening, but it’s not happening in a straight line.

In a highly concentrated market, passive exposure tends to work well because the largest names are doing most of the heavy lifting. But when leadership begins to widen, especially in uneven pockets, returns tend to become more dispersed across sectors, styles, and individual companies. Some previously overlooked areas may begin to benefit from improving fundamentals and more attractive valuations, while others may go through periods of consolidation even if their long-term outlook remains intact.

For investors, this kind of environment changes the calculus. A broader market can be a healthy development, but it also tends to create more differentiation, more false starts, and a wider range of outcomes. Capturing opportunity becomes less about owning the index and more about being positioned in the right areas as leadership evolves.

That is where flexibility becomes especially important. Rather than relying solely on static allocations or index weights shaped by the last cycle’s winners, a more tactical approach allows portfolios to adapt as new pockets of strength emerge and market leadership continues to shift.

Bottom Line for Investors

At Zacks Advantage, this is where actively managed ETF strategies can play an important role. By adjusting exposures as market conditions evolve, portfolios can participate in a broader opportunity set while managing the risks that often accompany periods of transition. When markets move from concentration to broader participation, adaptability and tactical management is essential, in our view.

In recent years, passive investing has become a popular approach, allowing virtually every investor to participate in the stock market with an ETF index fund that tracks the S&P 500.

However, a purely passive approach cannot beat the market (because it basically is the market). That’s why Zacks Advantage offers an actively managed robo advisor that:

• Invests exclusively with ETFs
• Uses technology to recommend the appropriate mix of equities and bond ETFs to help achieve your investing goal and specific risk tolerance
• Lowers fees and expenses

Get our free guide, A Better Way Forward: Actively Managing Passive Index Funds ³, to learn the 4 issues that can hold back returns for passive investors, and how Zacks Advantage can help you overcome them.

Download our FREE Guide³

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¹ Black Rock. March 6, 2026.

² Zacks Investment Management may amend or rescind the A Better Way Forward: Actively Managing Passive Index Funds guide offer for any reason and at Zacks Investment Management’s discretion.

³ Zacks Investment Management may amend or rescind the A Better Way Forward: Actively Managing Passive Index Funds guide offer for any reason and at Zacks Investment Management’s discretion.

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