The S&P 500 looks strong — but most of Corporate America isn’t feeling it

The Washington Post, Market Watch, and World Gold Council contributed to this report.

On paper, 2025 looks like a solid year for the stock market. The S&P 500 is up more than 12% despite tariff shocks in the spring and a jittery November. A casual glance at your 401(k) might suggest the economy is doing just fine.

Look a layer deeper, though, and the picture is a lot less rosy.

A small cluster of mega-cap tech names — the so-called “Magnificent Seven” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) — has done most of the heavy lifting. Their huge gains, powered by a frenzy of AI-related spending, have masked how sluggish things look for the other 493 companies in the index, and for smaller firms across the country.

Strip those giants out — call it the S&P 493 — and the story changes fast: weaker sales, flat investment and far more economic drag than the headline index suggests.

“Anything that is not connected to AI is throttled lower,” is how Moody’s Analytics chief economist Mark Zandi puts it.

Ever since ChatGPT hit public consciousness in late 2022, AI has become the market’s main obsession. A handful of firms selling the “picks and shovels” of the boom — chips, cloud capacity, software, data-center gear — have seen their stock prices explode.

• Nvidia is the poster child: its shares are up more than 1,000% since January 2023, even after a cooler 2025 in which it’s “only” gained around 29%.
• Palantir has doubled in value this year as it sells AI tools to big organizations.
• Micron has jumped more than 130% on surging demand for memory chips.
• Vertiv, which makes data-center cooling systems, is up more than 30%.
• Even Intel, while cutting thousands of jobs, has rallied about 70%.

At this point, a massive chunk of the US stock market is effectively an AI bet. One recent analysis found that roughly 40% of the S&P 500’s value is now tied to AI-exposed companies, meaning simply owning the index makes you heavily exposed to that theme whether you like it or not.

Apollo Global Management economist Torsten Slok worries the S&P has become dangerously concentrated.

“There is no diversification in the S&P 500 anymore in my view … it is all the AI story now,” he said.

Zoom out from the mega-caps, and the mood is very different.

The Russell 2000, which tracks small publicly traded companies, has been sliding, recently losing more than 4% in a single month versus a roughly 2% dip for the S&P 500. A bit over a third of Russell 2000 companies are unprofitable, says Wells Fargo strategist Scott Wren. Smaller firms are getting hit harder by:

• Tariffs and de-globalization, which raise import costs and are harder for them to dodge;
• Higher interest rates, because they rely more on debt to fund operations.

When investors suddenly decided the Fed might not cut rates again in December, small-cap stocks sold off sharply. Then, in a reminder of how sensitive they are to borrowing costs, the Russell jumped 2.8% in a single day after a Fed official hinted at “further adjustment” — code for another possible rate cut.

Capital spending tells a similar story. A joint analysis by JPMorgan and Moody’s shows capex is basically flat for companies not tied to AI, a worrying sign that low-tech and Main Street businesses are not investing for future growth.

In short: AI-adjacent giants are spending and expanding; everyone else is tightening belts.

Economists have started talking about 2025 as a K-shaped year:

• One arm of the “K” is shooting up: AI mega-caps, some emerging-market stocks, and pockets of commodities.
• The other arm is pointing down: smaller companies, interest-rate-sensitive sectors, and a lot of the real economy that doesn’t touch AI.

That K-shape now shows up within the stock market (Mag 7 vs everyone else) and across asset classes, especially in the split between bitcoin and gold.

• Bitcoin has been hammered in recent weeks, dropping below $90,000 for the first time since April as investors pull back from riskier bets.
• Gold, by contrast, has surged and is leading many cross-asset performance charts, boosted by a weaker dollar and strong buying in Asia. Investors in South Korea, China and Japan have piled into local gold ETFs as a hedge against choppy equity markets and geopolitical stress.

The World Gold Council dubbed this widening divergence the “Special K” — a yawning gap between bitcoin and gold that highlights how fragile crypto’s single use case looks compared with gold’s more traditional role as a safe haven and portfolio diversifier.

All this concentration comes with an obvious risk: what happens if the AI trade cracks?

We’ve already seen a taste of that.

Tech stocks have endured several sharp sell-offs since late October, and the tech-heavy Nasdaq is down around 7% from its late-month peak.

• AMD dropped roughly 16% in a single rough week, trimming what had been a nearly 70% gain for the year.
• Some analysts argue AI spending has run ahead of clear profits — with tech firms pouring money into each other’s data centers, chips and cloud contracts while the actual cash returns remain uncertain.
• Hedge fund manager Michael Burry, famous for calling the 2008 housing crash, has accused major AI players of overstating the long-term value of their assets and fueling a feedback loop of spending whose payoff is unclear.

A recent MarketWatch analysis compared the current setup to the late-1990s tech bubble: leadership rotation charts show tech sliding from “leading” to “weakening,” while sectors like utilities, healthcare and energy quietly move into stronger positions. AI isn’t “dead,” the piece concludes, but the easy phase of the rally may be over.

It’s not just about stock charts. The Magnificent Seven’s outsize role in the S&P 500 means their fortunes directly affect the wealth of millions of Americans with 401(k)s, IRAs and pensions.

Recent U.S. growth has leaned heavily on wealthy households still willing to spend — on travel, home upgrades, luxury goods — even as lower-income families feel squeezed by higher prices and borrowing costs. If a major AI or Big Tech correction hits, that “wealth effect” could evaporate fast, dragging consumer spending and the broader economy down with it.

At the same time:

• Smaller companies, which do much of the hiring, are under pressure from rates, tariffs and slow demand.
• Non-AI sectors are barely investing.
• Safe-haven flows are lifting gold and certain bonds, suggesting rising anxiety under the surface.

On the surface, the S&P 500 says “relax, we’re up double digits.” Underneath, a more complicated story is playing out: a narrow slice of AI winners at the top, a broad base of struggling firms below, and investors nervously rotating between risk, safety and whatever looks like the next sure thing.

If you want to know how the economy is really doing, don’t just look at the S&P 500. Look at the 493, the Russell 2000, and that strange “Special K” gap between bitcoin and gold. That’s where the tension is — and where the next chapter is likely to be written.