Fidelity Just Warned 500-Stock Fund Owners. 35% to 40% of Your S&P 500 Moves Come From 7 Mega-Cap Stocks

I’ve been holding NVIDIA for over 15 years and Apple since 2012, so when financial advisor Wes Moss told a caller on The Clark Howard Podcast on June 2, 2026, that the S&P 500 is not what most people think it is, I paid attention. A listener named Tony from Utah had received a letter from Fidelity warning that his S&P 500 fund no longer qualifies as diversified because the Magnificent 7 now drive most of its moves. Tony asked Moss whether he was overthinking his plan to add mid-cap, small-cap, international, and bond funds around the index.

Moss was blunt: “Hey, your S&P 500 is not that diversified anymore… 35 to 40% of the movement of that fund is in only 7, 8, 9, 10 stocks. So it’s technically, it’s really not that diversified.” He told Tony, “You’re not overthinking. I think you’re being smart about it.”

The verdict: Moss is right, and the math is uglier than most owners realize

If you own an S&P 500 index fund and believe you own 500 companies in any meaningful sense, the weight data tells a different story. You own a handful of mega-caps with a long tail attached. According to State Street’s official fund fact sheet as of June 30, 2026, the top holdings of SPDR S&P 500 ETF Trust (NYSEARCA:SPY) were NVIDIA at 7.5% of the fund, Apple at 6.6%, and Microsoft at 4.3%. Those three names alone accounted for roughly 18% of net assets, and the top 10 holdings combined claimed about 39% of the fund.

Put a number on it. If you invest $10,000 into an S&P 500 index fund, around $1,840 of that lands in those top three mega-caps. Roughly $3,900 funds the ten largest names. The remaining $6,100 is spread across the other 495 positions. That is the market-cap weighting Moss is pointing at: a bigger company captures a bigger slice and exerts more daily influence on what the fund does than any basket of smaller names can offset.

The concentration also shows up in how the two flavors of S&P 500 fund perform relative to each other. Year-to-date through early September 2026, SPY returned about 13%, while the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP), which weights every component the same, returned about 14%. That gap has actually flipped in 2026 compared to the prior decade: over ten years, SPY’s annualized return of roughly 15.5% has outrun RSP’s 12.1%, because mega-cap dominance compounded in the market-cap-weighted fund’s favor. Whether the mega-caps continue to lead or lag determines which approach wins in any given year.

The Magnificent 7 no longer move in lockstep, which makes the concentration picture more complex. As of mid-2026, Apple was up about 24% for the year, powered by investor enthusiasm for its capital-light AI strategy, while NVIDIA had gained only around 4% after a volatile stretch. Microsoft was up roughly 3% for the year, a surprisingly modest figure given that Azure revenue grew 40% in the company’s most recently reported quarter. When three names that together represent nearly 18% of the fund diverge this sharply, the index fund’s performance can look very different from what any single mega-cap headline suggests.

The variable that decides everything: do the mega-caps move together?

The single factor that determines whether this concentration helps or hurts you is correlation among those top names. When AI sentiment is running hot, NVIDIA, Microsoft, and the rest tend to rise together, and your S&P 500 fund prints big numbers. When sentiment shifts, they fall together, and the “500 stocks” label gives you far less cushion than you would expect. In 2026, that correlation has softened: SPY and RSP have shown a trailing correlation of around 0.71, well below their long-run average of 0.93, suggesting the mega-caps and the broader market are being priced on increasingly different logic.

Run the scenario yourself. Take a $10,000 position. If the top 10 holdings drop 30% in an AI repricing while the other 490 stocks are flat, your fund still falls roughly 12% because that top slice carries so much weight. In an equal-weighted fund where each name is about 0.2%, the same shock barely registers. That is the mechanic Moss is pointing to when he tells listeners to look at equal-weight ETFs as a complement to standard index exposure.

What to actually do with this

Moss laid out two concrete moves, and both are worth running through with your own numbers:

1. Add asset classes the S&P 500 underweights. Mid-cap, small-cap, and international ETFs give you exposure to companies that barely register in a market-cap-weighted U.S. large-cap fund. Tony’s proposed mix (S&P 500 at 35%, mid-cap at 15%, small-cap at 10%, international at 15%, and 25% in total US bonds and money market) is the textbook version of this approach.
2. Use equal-weighted ETFs for your large-cap exposure. A fund like RSP weights every S&P 500 component identically, so a single mega-cap cannot pull the fund up or drag it down on its own. In a year like 2026, where mega-cap returns have diverged sharply, RSP has captured more of the broad-market gain while absorbing less of any single-stock downside.
3. Read your fund’s top-10 holdings before you assume diversification. Pull up the fact sheet. If ten companies make up nearly 40% of your assets, you are running a concentrated bet whether you meant to or not.

I own NVIDIA and Apple directly, so I am doubly exposed when my S&P 500 holdings move with them. That was a choice I made with eyes open. The point of the Fidelity letter, and of Moss’s response, is that most index investors never made that choice consciously. If 35% to 40% of your fund’s daily movement comes from 7 to 10 stocks, calling it “the 500” is more marketing than math. The fix is straightforward: own the rest of the market on purpose.

Editor’s note: This article has been updated with current SPY top-10 holding weights from State Street’s June 30, 2026 fact sheet (NVIDIA 7.5%, Apple 6.6%, Microsoft 4.3%, top 10 at approximately 39%), refreshed year-to-date performance figures for SPY and RSP through early September 2026, updated individual stock performance for NVIDIA, Apple, and Microsoft, and added context on the SPY/RSP correlation shift and Microsoft’s Azure 40% revenue growth in its most recently reported quarter.

Contact [email protected] for any questions or corrections.