All 11 S&P Sectors Seen Growing, But Gains Still Hinge on AI

All 11 parts of the S&P 500, the index tracking 500 large U.S. companies, were expected to post higher earnings in 2026, even though AI-related companies were expected to deliver most of the growth. That forecast was reported on Oct. 1. Reuters

The index was up about 12% for 2026 as of Sept. 8. It was about 1% below its record close on Aug. 13. The dip was small, and the market still depended on a few winners. Reuters

That dependence on a few stocks had reached historic levels as of May, during the fast-moving AI boom in the U.S. and elsewhere. By September, AI chipmakers accounted for most of the biggest year-to-date gains in the S&P 500. Profit forecasts had spread out, but price gains had not. Reuters Reuters

Analysts on average expected second-quarter S&P 500 earnings to rise 39% from a year earlier, with AI-related stocks driving much of that increase. Results earlier in the year were already strong. As of April, 81.3% of S&P 500 companies had beaten analysts' forecasts, and total earnings were expected to be up 16.1%. Reuters Reuters

Trading around AI stocks has been sharp and fast-changing. Investors grew nervous about the AI rally after industry leaders called for slowing the pace of AI development. Selling that started in software spread to wealth management and logistics firms, with cybersecurity firms among the latest affected. Wall Street then finished higher on a Friday in late September, helped by Microsoft and other AI-related tech stocks. Reuters Yahoo Finance Reuters

The broader context here is that the market is pricing two separate stories. Broad earnings growth across all 11 sectors helps justify current valuations, the multiples investors pay for each dollar of profit. Heavy price gains in AI chipmakers and large tech platforms concentrate the risk of sharp falls and of diverging from the average.

In my view, it helps to separate earnings risk from price risk. A 39% second-quarter jump led by a narrow group means profits depend heavily on AI spending, demand for cloud services, and how long the chip cycle lasts. The April data, with more than 80% beating forecasts and 16.1% growth, showed business results were not narrow then. Stock prices were.

Looking at what this means for portfolio construction, concentration changes what index funds do. Funds that weight stocks by size carry bigger bets on a few names and one theme. The gap between those funds and equal-weight versions, which treat each stock equally, gets wider. Spreading money across sectors helps less when profits are broad but gains are not, because AI stocks still drive most of the movement.

The scare trade rotation is instructive for risk desks. Pressure moving from software to wealth management, logistics and cybersecurity points to investors marking down stocks seen as vulnerable to AI disruption or heavy AI spending, rather than worrying only about chip inventories. The late-September bounce led by Microsoft shows positioning can swing both ways, and crowding makes both moves larger.

For credit and equity analysts, the question is whether earnings and valuations can both last. If all 11 sectors deliver growth, total earnings can hold up even if AI slows. Prices may not, given where this year's gains came from. That gap between broad profits and narrow gains is the fault line to watch into year-end.