The stock market's comeback from the Iran-inspired selloff hasn't been as powerful as you might think

MW The stock market's comeback from the Iran-inspired selloff hasn't been as powerful as you might think

By Joseph Adinolfi

Yes, the S&P 500 has powered back into record territory. But its equal-weighted sibling is still languishing below its previous peak.

The S&P 500's rebound has been strong, but it rests on a narrow foundation.

A steady grind lower in March for the major U.S. equity indexes has given way in April to a powerful stock-market rebound. But beneath the surface, things aren't looking quite as rosy for members of the S&P 500.

See: Stocks usually take the escalator up and the elevator down. In this latest rebound, it is happening in reverse.

Since the market bottomed on March 30, the S&P 500 SPX has outperformed the S&P 500 Equal Weight Index XX:SP500EW by 5.73 percentage points. That is the largest rolling 20-day outperformance since Dec. 24, 2024, and one of the largest outperformances over the past two decades.

Since it treats each member stock equally, rather than applying a heavier weighting to larger constituents, the equal-weight version of the index is seen as a barometer of how well the average S&P 500 stock is doing.

The fact that it is trailing the capitalization-weighted index to such a large degree is an indication of just how narrow the S&P 500's comeback from the Iran war-inspired selloff has truly been. Megacap tech stocks like Nvidia (NVDA) and Microsoft $(MSFT)$ have come charging back, as have stocks in the semiconductor industry group. Yet they have accounted for much of the index's gains since the end of March.

Despite Tuesday's pullback, the S&P 500 still finished nearly 7% above its 200-day moving average, FactSet data showed. But according to an analysis from Sentimentrader, less than 60% of the index's constituents were trading above their own 200-day moving averages this week.

Over the long term, returns after periods like this look relatively strong. But over the short term, they have left something to be desired. Win rates over one- and three-month time horizons following such a sharp divergence between the performance of the S&P 500 and the performance of its constituents are below 70%. That is well below the average win rate for all periods, which is closer to 80%.

"The index is running ahead of its own internals," the Sentimentrader team said in written commentary shared with MarketWatch.

After three straight years in which a minority of stocks in the S&P 500 outperformed the index, breadth suddenly exploded in early 2026, as stocks in lagging sectors like energy XX:SP500.10 and consumer staples XX:SP500.30 started to catch up to highflying technology stocks XX:SP500.45.

Nate Thooft, chief investment officer of equities and multiasset at Manulife Investments, said the narrowing of stock-market leadership since the start of April makes sense, given the still unresolved conflict in Iran.

With such a serious potential risk hanging over the market, investors are rationally choosing to favor stocks with the strongest expected earnings growth and some of the highest-quality fundamentals, Thooft said. That means megacap tech and semiconductors, largely.

Based on the latest forecasts, Wall Street analysts expect three sectors - technology, energy and financials XX:SP500.40 - to drive the vast majority of earnings for members of the S&P 500 this year. Outside of tech, earnings forecasts have improved as well. But tech remains far and away the earnings heavyweight.

Right now, investors are still worried that the spike in energy prices caused by the Iran conflict could trigger another wave of inflation, Thooft noted. That could pressure the Federal Reserve to delay its next interest-rate cut, or perhaps even hike rates.

But once that has passed, Thooft said he expects a resumption of the broader stock-market performance investors had witnesses earlier this year.

"We do believe that ultimately you will see a bit of a return toward this broadening of stock-market participation," Thooft said during an interview with MarketWatch. "The likely catalyst will be a more formal resolution of the Iran conflict."

U.S. stocks fell on Tuesday, with the S&P 500 finishing 0.5% lower at 7,138.80, FactSet data showed. The Invesco S&P 500 Equal Weight ETF RSP saw a slightly larger drop, and closed at $200.76 a share.

-Joseph Adinolfi

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April 28, 2026 18:31 ET (22:31 GMT)

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