Weekly Warm-up: Broadening Continues as Index Struggles

Research evidence excerpt

Weekly Warm-up: Broadening Continues as Index Struggles

Idea

July 20, 2026 04:01 AM GMT

Morgan Stanley & Co. LLCMUS Equity Strategy | North America Michael J Wilson

Equity Strategist

Weekly Warm-up: Broadening M.Wilson@morganstanley.comAndrew B Pauker +1 212 761-2532

Andrew.Pauker@morganstanley.com +1 212 761-1330

Continues as Index Struggles Michelle M. Weaver, CFA

Michelle.M.Weaver@morganstanley.com +1 212 296-5254

Our broadening thesis continues to play out as the index Diane Ding, Ph.D.

struggles to make headway and former leaders correct. This QuantitativeQian.Ding@morganstanley.comStrategist +1 212 761-6758

leadership change is likely to persist and may lead to further Nicholas Lentini, CFA

consolidation in major indices before the bull market resumes in EquityNick.Lentini@morganstanley.comStrategist +1 212 761-5863

earnest. Focus on EPS quality at the factor level.

• Our Broadening Thesis Continues to Play Out...The Equal Weighted S&P

500 has continued to outperform the Cap Weighted S&P, while Consumer

Discretionary Goods and Transports have each outperformed the S&P 500

by 12% over the past two months. We continue to see support from

accelerating earnings growth across the median stock, expanding Artificial

Intelligence adoption, lower expected oil prices, and a Federal Reserve that

remains on hold.

• ...As Semis Underperform...A month ago, we argued that the momentum

trade and Semiconductors, in particular, were due for a pullback as earnings

revisions breadth reached historical extremes, price action reflected

commodity-like volatility, and positioning became increasingly concentrated

and driven by leverage. While we would not be surprised to see a bounce in

Semis given the 20%+ correction already experienced, we continue to expect