Looking Beyond the Headlines: What the S&P 500 Isn't Telling Us

Recent headlines paint a picture of strength across U.S. markets. The S&P 500 has reached new highs, powered by a handful of mega-cap technology names that dominate both investor attention and index performance. Yet, as The Washington Post recently highlighted, the index's performance tells only part of the story, and it may not reflect the true state of the broader economy.

A Market Led by the Few

Today, seven companies make up more than a third of the S&P 500's total market capitalization. Their growth, fueled largely by enthusiasm around artificial intelligence and cloud computing, has driven most of the index's return in 2025. In fact, four of the top five S&P 500 stocks in October were AI-related, despite concerns about an "AI bubble." But when you remove those names from the equation, the remaining 493 companies have largely underperformed.

"The different performance pattern for small cap stocks really reflects the uncertainty creeping into markets," said Wayne Wicker, president of Opal Capital.

"Given the greater sensitivity of small companies to domestic economic trends, investors have been reducing exposure to small caps in favor of large cap companies who continue to benefit from global growth related to AI-based technologies."

At Opal, we believe this level of concentration underscores a deeper risk: when a small subset of stocks drives the entire market, investors are more exposed to the fortunes and valuations of just a few companies. This dynamic mirrors past cycles where exuberance around innovation masked weakening fundamentals elsewhere in the economy. As Wicker notes, this pattern

"underscores the focus by investors to chase the most successful trades of the past six months as we enter the last quarter of the year."

The Disconnect Between Markets and the Real Economy

The Post points out that while markets soar, parts of the economy are sending mixed signals. Manufacturing remains sluggish, small businesses face tighter credit, and corporate earnings growth has been uneven. Adding to the uncertainty, US companies announced 153,074 job cuts, the highest total for the month of October in over 20 years.

Economic visibility has also been compromised.

"The government shut down has really reduced economic visibility given the lack of regular reporting we typically receive,"

Wicker explains. This divergence between market performance and economic fundamentals is a reminder that index-level returns don't always reflect underlying economic health.

From our perspective, this reinforces the importance of diversification, not just across sectors, but across geographies and asset classes. A disciplined, forward-looking investment process helps investors avoid the pitfalls of chasing momentum and ensures portfolios remain positioned for durable, risk-adjusted returns.

Diversification as a Risk Control, Not a Trend

In 2025, true diversification means going beyond the S&P 500. International markets, dividend strategies, and alternative income sources are all playing increasingly important roles in building resilient portfolios. As we've seen throughout history, periods of market concentration eventually give way to broader participation, and investors who prepare ahead of that shift are better positioned for long-term success.

At Opal, we approach diversification as both a defensive and offensive tool. By blending global equity exposure, disciplined fixed income management, and selective alternatives, we help advisors design portfolios that perform not just in bull markets, but across full economic cycles.

Staying Grounded in Fundamentals

Market narratives shift with the headlines, but the principles that drive long-term success don't. Your clients depend on you to see beyond index-level performance and build portfolios that reflect both current realities and emerging opportunities.

We're here to help you do exactly that.

To learn more about Opal's approach to globally diversified, fundamentally driven portfolios, visit www.opalinvest.com.

To read the full Washington Post article visit: https://www.washingtonpost.com/business/2025/11/24/sp500-stock-market-tech-nvidia/