US Equity Strategy: AI‘s Subtle S&P 500 Impacts

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US Equity Strategy: AI‘s Subtle S&P 500 Impacts

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28 Jul 2026 12:28:30 ET │ 15 pages

US Equity Strategy

AI’s Subtle S&P 500 Impacts

CITI'S TAKE

Scott T Chronert AC

Our “cluster” approach to aligning the S&P 500 per Growth, Cyclical and +1-415-951-1771

Defensive components sets up for several important index considerations. scott.t.chronert@citi.com

First, historic economic sensitivity has diminished for now but could

resurface later as a function of the AI influence. Second, the increasing Patrick Galvin, CFA

Growth cluster weight implies higher beta but shows up more at the stock- +1-212-816-5373

specific level than at the index level. Third, a valuation regime change needs patrick.galvin@citi.com

to be acknowledged whereby historic compares may be misleading. Overall,

the underlying AI influence on US equities is testing conventional

investment perspectives and related asset allocation decisions.

Clusters and Macro Implications — In previous work we noted that the Growth

cluster has increased to 55% of the index from <20% thirty years ago. Yet, only since

the Covid episode has the S&P 500 beta and correlation to nominal and real GDP

fallen significantly. We suspect that as AI capex spending persists, along with stock

market wealth effects, that correlation could begin to increase.

What About Beta? Average stock beta has been falling relative to the index,

alongside a rising index weight in high beta stocks. This reflects increasing industry

group dispersion, with counterbalancing effects. Interestingly, this shows up in a

rising weighted S&P 500 beta relative to its equal weight index.

Which Valuation Compare? Investor conversations continue to focus on the

valuation level for the S&P 500. We argue that historic valuation compares can be