Societe Generale sees broadening rally favoring equal-weight strategy in 2H26

Financial markets have entered a period defined by a rotation of leadership, as the rally that dominated early 2026 moves beyond a narrow set of technology beneficiaries.

Societe Generale has maintained a bullish stance on this broadening trend for 18 months, specifically advocating for the S&P 500 Equal Weight index. The bank’s analysts argue that this index serves as the most accurate proxy for U.S. Nominal growth, effectively insulating portfolios from the heavy concentration found in the standard cap-weighted S&P 500, where technology stocks account for 32% of the total weight.

Media additions

The strategic shift is rooted in the evolving demands of the infrastructure buildout surrounding artificial intelligence. While early market gains were driven by a small cohort of technology leaders, the current phase favors sectors involved in the physical expansion of power and industrial capacity. Specifically, utilities, materials, and industrials are gaining attention as essential components of the AI infrastructure.

Sector Performance and Rotation

The landscape of sector leadership has changed significantly. Societe Generale noted that the rally has moved from materials and staples earlier in the year toward energy, technology, and healthcare. Meanwhile, analysts at Standard Chartered have moved to close overweight positions in Asia ex-Japan, citing the region's strong performance relative to global equities, and have instead upgraded Europe ex-UK to a core allocation. This move is designed to capture a broader set of adopters within the industrial, financial, consumer, and healthcare sectors.

Despite the cooling of the most concentrated tech trades, observers suggest that the broader AI theme remains structurally sound. The transition is described as a move toward dispersion over direction, where aggregate operating cash flow in the technology sector remains at high levels, even as individual company performance diverges.

Market Indicators and Strategy

Current market metrics provide a complex picture of the ongoing rally:

• 67% of stocks are currently trading above their 50-day moving average.
• U.S. Consumer Cyclicals have been flagged as a primary catch-up trade, having underperformed the S&P 500 Equal Weight index since early June.
• Cross Asset Momentum indicators have turned positive for the first time since June 2, 2026, supported by lower credit spreads and VIX levels.

While the broadening trend is a shared outlook, perspectives on specific targets vary. Some projections place the S&P 500 ceiling near 7,000 through the end of 2026.

What to Watch Next

As the market navigates the second half of 2026, investors are monitoring several indicators that may signal the duration of this rotation:

• AI Adoption Threshold: Data from the U.S. Census Bureau suggests that AI adoption is approaching a 20% penetration rate. History indicates that crossing this threshold often shifts value from early-stage infrastructure enablers to downstream adopters.
• Consumer Cyclical Catch-up: Whether the consumer sector successfully closes the performance gap compared to broader indexes will serve as a bellwether for the durability of the current market breadth.

The bank continues to hold overweight positions in industrials, a strategy it has maintained for four years, while concurrently looking for opportunities in financials and consumer-facing segments to serve as the next leg of the broadening trade.