S&P 500 lags pure value and growth indexes as smaller stocks boost

The S&P 500’s total earnings grew 28.4% in Q1 2026, but the index has lagged the narrower “pure” value and growth versions that have outperformed since the end of 2024, underscoring the impact of earnings from the 493 non‑Magnificent Seven stocks【1】.

Earnings spread drives the gap

FactSet data show the 493 “underdog” companies posted a 17.4% earnings‑per‑share gain in the first quarter, the strongest rate since Q4 2021【1】. By contrast, the “Magnificent Seven” delivered a 63.2% surge, their best since Q2 2021. The combined 28.4% rise for the whole index reflects the blend of these two segments. Because the pure value and pure growth indexes weight stocks by style scores rather than market cap, they avoid the heavy concentration in the top three mega‑caps (NVDA, AAPL, MSFT) that together represent more than 19% of the SPDR S&P 500 ETF (SPY)【2】. This concentration dampens the broader index’s performance when smaller‑cap value or growth stocks post strong earnings.

Index construction explains the outperformance

S&P Dow Jones Indices trims overlap by creating “pure” versions that include only the highest‑scoring value (122 stocks) or growth (60 stocks) companies, rebalanced annually and limited to 23% per name【2】. The pure indexes therefore capture the earnings momentum from mid‑cap and small‑cap firms that are excluded from the traditional Value and Growth splits, which still contain 443 and 139 companies respectively【2】. As a result, the pure value and pure growth tracks have outperformed the broader S&P 500 and its standard value/growth counterparts since late 2024【2】.

Market reaction and implications

Investors have noted that the earnings boost from non‑Magnificent Seven firms, especially in materials and consumer discretionary segments, has not translated into proportional gains for the S&P 500 because the index’s cap‑weighting skews toward the mega‑caps. The divergence has prompted analysts to point to a “sharper K‑shape” in consumer spending, where affluent buyers sustain growth while broader demand softens amid higher gas prices and inflationary pressures【1】. The pure indexes, by design, are less exposed to this concentration risk, offering a clearer view of underlying earnings trends.

What to watch

• Upcoming Q2 2026 earnings releases from mid‑cap growth firms, which could further widen the gap between the S&P 500 and pure indexes.
• Any changes to the 23% single‑stock cap or the 4.8% combined‑weight limit in the pure indexes during the December rebalancing.
• Federal Reserve policy updates that may affect consumer spending and, consequently, earnings momentum in the broader index.

The divergence highlights how index methodology can mask earnings strength in smaller constituents, raising questions about whether investors will shift toward style‑score weighted products to capture the underlying growth.