SP SP:SPXEW S&P 500 Equal Weight Index Loading... : Bullish and Bearish Analyst Opinions

Song argues that long cycles of concentrated market-cap-weighted mega-cap leadership tend to be shorter than they look, while equal-weight investing has historically been better over long periods; with the US market having favored cap-weight and mega-cap momentum for roughly ten to fifteen years, he believes the market is entering a period where equal-weight and small/mid-cap styles can lead again.

Equal-weight strategies provide a negative correlation (-0.52) with momentum, reducing portfolio risk. Both equal-weight and momentum are beating the overall market currently, so combining them sets up the next trade years ahead.

Mid-caps, small-caps, equal-weight S&P 500, and foreign equities have been beating the Mag 7 this year and have more room to run as valuations are more attractive and the economy supports broadening.

As parts of the AI complex roll over, the market is rotating into value/cyclical pockets such as regional banks, biotech, small-cap industrials, and equal-weight S&P. These areas offer better risk/reward than high-flying semiconductor names.