Is the S&P 500 No Longer the Economy? DataTrek’s Nick Colas Weighs In
The important issue for ETF investors is not whether the S&P 500 has stopped reflecting the economy in some abstract sense, but what kind of exposure the index now actually delivers. If technology-related firms make up an unusually large share of the benchmark, owning a plain-vanilla S&P 500 fund increasingly becomes a specific bet on a narrow group of business models, capital-spending cycles and valuation assumptions rather than a neutral claim on broad corporate America.
That matters because many investors still treat market-cap weighting as synonymous with diversification. It is diversification by number of holdings, but not necessarily by economic drivers. A portfolio built around one cap-weighted US equity ETF can look broad on paper while remaining highly dependent on a handful of mega-cap companies to drive returns. Equal-weight strategies may reduce that concentration, but they also change the portfolio’s factor profile, typically increasing exposure to smaller companies, rebalancing turnover and periods of relative underperformance when leadership stays narrow.
The article also links yields, AI spending expectations and equity leadership. For long-term investors, that is a reminder to separate macro narratives from portfolio design. If falling or rising rates alter enthusiasm for AI-heavy stocks, the bigger question is whether your allocation can withstand leadership reversals without requiring timely forecasts. Concentration risk is easiest to notice after a strong run, but the practical response is usually structural: decide how much US mega-cap exposure you want, what role equal weight or sector diversification should play, and how often you will rebalance when one part of the market comes to dominate the rest.
DataTrek co-founder Nick Colas says tech and big tech now account for about 50% of the S&P 500. He argues that makes the index a weaker proxy for the economy than it has ever been.
Colas spoke on CNBC’s Closing Bell Overtime on Thursday, as the 10-year Treasury yield slipped below 5%. The drop reads as relief to some and as a sign of slowing growth to others.
Why Are Yields Ignoring Oil, According to Nick Colas?
Colas said oil and bond yields moved together for roughly 10 years. However, he said that link broke in mid-September, as oil fell and yields kept climbing.
Instead, he ties the moves to AI. He says expectations of less AI funding are easing real rates, meaning yields adjusted for inflation.
Meanwhile, investors are also weighing a possible AI spending slowdown.
Separately, he said the K-shaped economy, where higher earners thrive while others lag, still holds. He said withdrawn initial public offerings (IPOs) could thin the ranks of the wealthy at the top of the K.
Is Tech’s Grip on the Index Permanent?
Colas credited Moore’s law, the observation that chip capability rises steadily while costs hold, for the shift.
By his count, tech’s share now tops both oil’s roughly 28% in 1980 and tech’s 30% to 32% in 2000.
On whether the market will broaden, Colas named one condition.
“until some other industry can double in power every two years for every dollar.”
Nick Colas, speaking on CNBC
In contrast, Apollo chief economist Torsten Slok has argued that the 1990s tech bubble was smaller than today’s AI bubble. He made that case in a September 2025 chart book.
How Is DataTrek Telling Clients to Hedge Concentration?
Colas said DataTrek advises worried clients to look at the equal-weight S&P 500. That approach gives every company the same share of the index.
The Invesco S&P 500 Equal Weight ETF (RSP) holds about 16% tech, he noted.
He also likes homebuilders, which he said have lagged since 2025. Mortgage relief would help the group, he added.
If Colas is right, the index most investors track will keep reflecting chip economics more than the broader economy. That split sits at the center of the AI bubble debate, where one camp sees structure and another sees excess.
The post Is the S&P 500 No Longer the Economy? DataTrek’s Nick Colas Weighs In appeared first on BeInCrypto.
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