Since it's Friday and the markets are closed for the weekend... I thought it was a good time to show you this!
Take Away the A.I. Stocks and What's Left?
A Healthier Market Than You Think!
What the S&P 500 looks like without the Magnificent Seven — and why Canadians should be watching the other 493 companies, not the seven everyone talks about.
Here is a thought experiment worth doing with real numbers: Take the S&P 500, remove the AI trade... Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla, the so-called Magnificent Seven... and look at what remains!
The exercise sounds academic.
It isn't!
The S&P 500 without AI stocks turns out to be a different market entirely, and in 2026 that difference has become the single most useful diagnostic tool an observer of the North American economy can have!
A Third of the Index Is Seven Companies:
Start with the scale of the problem. As of July 2026, the Magnificent Seven carry a combined market value of roughly $22 trillion... about one-third of the entire S&P 500.
That weight has hovered between 32% and 35% for the past year.
Put another way: when you buy a plain index fund believing you own "the market," a third of your money is riding on seven companies whose valuations rest largely on a single technological bet!
This is not a normal state of affairs.
Concentration at this level exceeds anything seen at the peak of the dot-com era, and it means the daily movement of the index tells you more about sentiment toward one trade than about the health of the American economy!
The Tale of Two Markets in 2026:
Now remove those seven names and watch the picture change. There is an exchange-traded fund that does exactly this... the Defiance Large Cap ex-Mag 7 ETF, ticker XMAG, which holds the S&P 500 minus the seven.
Its performance this year against the full index is instructive:
- The Magnificent Seven, measured by the Roundhill MAGS ETF, peaked in late October 2025 and have been drifting downward since — falling as much as 12% at points this year.
- The full, cap-weighted S&P 500 has been dragged down with them, off roughly 4% at the spring lows.
- The other 493 companies... some analysts have started calling them the "Impressive 493" have held nearly flat to modestly positive.
And beneath that flat aggregate number, the old economy is having a genuinely good year.
By late winter, energy stocks were up more than 23%, basic materials nearly 18%, consumer staples over 15%, and industrials about 14%.
Healthcare and even residential construction have joined the advance.
Money is not fleeing the stock market... it is rotating out of the crowded A.I. trade and into everything else!
What the Market Without A.I. Stocks Actually Tells Us:
Three conclusions fall out of the numbers.
First, the underlying American economy is in better shape than the headline index implies. The 493 trade at far more ordinary valuations. Their anchors... JPMorgan, Exxon Mobil, Johnson & Johnson, Walmart... are companies with decades-long records of dividends backed by real cash flow.
The famous warnings about the S&P 500's stretched valuation are overwhelmingly a statement about seven stocks... not five hundred!
Second, the index is no longer a mirror of the market. Because the seven still account for roughly a third of the index's weight, a bad day for Nvidia moves the S&P 500 more than a good quarter for a hundred mid-sized industrial firms.
Investors who believed they held a diversified portfolio have, in fact, been holding a concentrated technology bet with a long tail of other companies attached.
Third, the unwind... so far... is orderly! The feared scenario has always been that an A.I. correction takes the whole market down with it.
What has actually happened through mid-2026 is a rotation... capital leaving the seven and finding a home in energy, materials, financials, and staples.
This is the "broadening out" that market veterans like Ed Yardeni predicted when he ended his buy call on big tech last December, arguing that the AI story could only continue if its benefits spread to the companies buying the technology, not just the ones selling it!
What Can Be Done With This Information:
For an ordinary investor, the toolkit is straightforward and already exists.
Equal-weight index funds, the largest being the Invesco S&P 500 Equal Weight ETF (RSP), assign each of the 500 companies the same 0.2% weight, cutting Magnificent Seven exposure from about 35% to roughly 1.4% while keeping full exposure to American large caps.
Funds like XMAG exclude the seven outright!
Neither is a prediction that A.I. stocks will crash; both are simply ways to own the market without owning quite so much of a single trade. (The usual caveat applies.... this is a description of the instruments, not investment advice!)
But the more valuable use of the ex-A.I. market is diagnostic, and this is where the Canadian interest comes in.
The performance gap between the seven and the 493 is a real-time gauge of whether the A.I. correction stays contained or turns systemic.
Watch the tripwire: as long as the 493 keep grinding higher while the seven deflate, what we are witnessing is a sector repricing... painful for index holders, but not a repeat of 2000 or 2008.
If the 493 begins rolling over as well, it means the damage is spilling over into the broader economy through reduced capital spending, a shrinking wealth effect, and tighter credit!
That distinction matters enormously north of the border.
A.I. data-centre construction has been one of the few forces propping up American GDP growth.
A contained unwind leaves U.S. demand for Canadian energy, lumber, metals, and manufactured goods largely intact… and note that the sectors leading the 2026 rotation, energy and materials, are precisely the sectors where Canada sells!
A systemic unwind, by contrast, would hit Canadian exports just as the country works its way out of its technical recession, though it would likely also accelerate the rotation into Canadian federal bonds that has already been underway as global investors look for alternatives to U.S. assets.
The Bottom Line:
Strip the AI stocks out of the S&P 500, and you find a market that is neither euphoric nor collapsing... just an ordinary economy, reasonably priced, going about its business!
The bubble, if that is what it is, lives in seven names!
The information in that split is more useful than any forecast... it tells you where the risk is concentrated, gives you the means to step around it, and... for those of us watching from Canada... provides an early-warning system for whether America's A.I. reckoning will stay on Wall Street... or arrive at our loading docks!
Keep your eye on the 493. They are the real market!
