Title: The S&P 493: The Canary in the AI Coal Mine

The stock market's been flashing green, but let's be real: it's a mirage for most companies. The S&P 500 is up – more than 12% year-to-date, according to recent reports. But peel back the layers, and you'll find a disturbing truth: the so-called "Magnificent Seven" (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) are doing all the heavy lifting. What about the other 493 companies? They're telling a very different story, one of struggle and stagnation.

The Great Divide: AI Haves and Have-Nots

The Washington Post nailed it: the S&P 493 is packed with companies that are smaller, less tech-focused, and frankly, getting squeezed. Sales are slowing, investments are being cut back, and the overall outlook is… well, let's just say it's not "magnificent." Moody’s Analytics chief economist Mark Zandi calls it a clash of "AI tailwinds" versus "deglobalization and tariff headwinds." In other words, if you're not riding the AI wave, you're probably getting crushed.

Nvidia, for example, has seen its stock price skyrocket – up 1,000% over two years and another 29% this year. Palantir, Micron, Vertiv? They're all printing money, thanks to the AI boom. Meanwhile, the Russell 2000 index, which tracks small-cap stocks, is down 4.5% over the same period. It's not just underperformance; it's a complete divergence.

Small caps are getting hammered by tariffs and high interest rates. They lack the scale to absorb higher import costs or shift supply chains. They're also more reliant on debt, making them vulnerable to rate hikes. Investors are pulling their money from these smaller players and piling into the mega-caps that are supposedly benefiting from global AI demand.

Is the S&P 500 Even Diversified Anymore?

Here's where things get really interesting. Apollo's chief economist, Torsten Slok, argues that the S&P 500 is becoming less diversified. With one-third of the index concentrated in just seven companies, it's essentially morphing into an "AI index." This raises a critical question: is the S&P 500 still a reliable barometer of the U.S. economy, or is it just a reflection of AI hype? 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 S&P 500 is supposed to be a diversified index, shouldn't it reflect the broader economy, not just the fortunes of a handful of tech giants? The concentration is reaching absurd levels. The earnings expectations tell the story. Since earlier in 2025, expectations have increased for the Magnificent Seven and declined for the S&P 493. A note last week from chief economist Torsten Slok outlined how, the consensus estimates for the Magnificent 7 have increased by a little under 4% between October and April, while the remaining 493 stocks in the S&P 500 have dropped by approximately 1.5%.

We're also starting to hear whispers of an AI bubble. Hedge fund manager 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 taken a hit, falling 7% from last month's peak. Could this be the start of something bigger?

The risk is that a big tech correction could spill over into the broader economy. The current growth is heavily reliant on the "wealth effect" – increased spending by high-income earners who are benefiting from soaring stock prices. If those big tech shares tank, consumer spending could dry up fast, triggering an economic slowdown. "Consumers and corporations alike are in a very vulnerable position if the AI narrative wobbles," Slok says.

The Illusion of Prosperity

The U.S. stock market might look healthy on the surface, but underneath, a dangerous polarization is taking place. The AI beneficiaries are thriving, while the rest are struggling to stay afloat. The S&P 500 is being distorted, and the "wealth effect" is creating a fragile foundation for the economy. The question isn't whether the AI boom will continue, but what happens to the rest of us when it inevitably cools down.

The Market's Sending a Clear Signal