S&P 493: What it Is, ETF, Index, and Chart Implications

Title: The S&P 493: The Illusion of Market Strength

The stock market's been flashing green, no doubt. The S&P 500 is up over 12% this year. But here’s the thing: that headline number is a mirage. Scratch the surface, and you'll find the so-called "Magnificent Seven" – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla – are doing all the heavy lifting. The real story? The S&P 493 – the other 493 companies in the index – paints a very different picture of the U.S. economy.

The AI-Fueled Distortion

It’s all about AI, or rather, the perception of AI dominance. Mark Zandi at Moody’s Analytics nails it: AI is a tailwind for a select few, while deglobalization and tariffs are headwinds for everyone else. Sectors unrelated to AI are broadly on a downward trend. We're talking about a K-shaped recovery, not just for individuals, but for companies too. The rich get richer, and the rest… well, you know.

Nvidia, for instance, is up over 1,000% in two years and 29% this year alone. Palantir, Micron, Vertiv – they're all riding the AI wave. Meanwhile, the Russell 2000, which tracks small and mid-cap stocks, is down 4.5% over the same period. It's moving in the opposite direction of the S&P 500. What does this discrepancy tell us? That the market's health is being propped up by a handful of AI darlings.

Tariffs and high-interest rates are crushing smaller companies. They can’t absorb higher import costs or easily shift supply chains. They rely on debt for working capital, making them vulnerable to rate hikes. Investors, rationally or irrationally, are pulling money from small caps and piling into large caps that benefit from global AI demand. It’s a self-fulfilling prophecy, really.

The Diversification Myth

Here's where it gets interesting. The S&P 500 is supposed to be a diversified index, a broad representation of the U.S. economy. But Torsten Slok, chief economist at Apollo, argues that it's becoming an "AI index." One-third of the index is concentrated in seven corporations. Think about that for a second. Is this really diversification, or just a concentrated bet on a single theme? I've looked at hundreds of these reports, and this level of concentration is genuinely alarming. K-shaped economy can also be found in S&P 500, says Apollo, with Magnificent 7 the winners

And this is the part of the report that I find genuinely puzzling. If the index is supposed to reflect the overall market, why is it so heavily weighted towards a single sector? Shouldn't there be some mechanism to rebalance and ensure broader representation? Or has the S&P 500 simply become a marketing tool for attracting investment into a handful of tech giants?

The fear of an AI bubble is real. Michael Burry, of "The Big Short" fame, is already warning that the AI industry is exaggerating its long-term profitability. The tech-heavy Nasdaq has already fallen 7% from last month’s peak. A mild pullback, sure, but a warning sign nonetheless.

The wealth effect is driving a significant portion of economic growth. High-income earners, flush with cash from their inflated stock portfolios, are spending more. Zandi estimates this accounts for nearly half a percentage point of real GDP growth over the past year – about one-fourth of the economy’s overall growth. But what happens when the bubble bursts? What happens when big tech shares plunge? Consumers’ spending capacity could shrink quickly, increasing pressure for an economic slowdown.

Slok warns that consumers and corporations alike are in a vulnerable position if the AI narrative wobbles. The U.S. stock market may appear strong on the surface, but beneath the surface, structural polarization between AI beneficiaries and everyone else is deepening. It's like a Potemkin village – impressive from afar, but hollow up close.

A Very Fragile Foundation