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A Monstrous Bull Market Is Building Beneath the S&P 500, Says Hedge-Fund Manager
At a glance
- Since late July a handful of AI names have propped up headline indexes while most S&P 500 stocks were weak.
- Thomas Hayes expects a broad-based bull market in the next six months led by the majority of S&P 500 constituents.
- Companies that actually boost productivity and margins with AI are likely to outperform those merely increasing AI spending.
- Major indexes can be misleading when a few large-cap stocks dominate performance; market breadth is a useful complementary indicator.
- Investors should focus on earnings revisions and concrete ROI from AI when choosing stocks.
Market Analysis
Since late July, a small group of artificial-intelligencerelated stocks has carried the S&P 500 close to all-time highs while most index constituents languished in bear-market territory or something close to it. That narrow leadership has obscured strength forming deeper in the market, Great Hill Capital manager Thomas Hayes warns. Over the next six months, he expects a monstrous bull market under the surface of the S&P 500 propelled not by the headline names but by what he calls the unmagnificent 493.
Major indexes such as the S&P 500 and the broader Nasdaq wont fully reflect that developing strength, Hayes says, because weightings in those benchmarks are skewed toward a handful of AI plays. In other words, headline performance is masking what could be broad-based improvement among the rest of the indexs companies.
Hayess view is straightforward: companies that are adopting AI in ways that boost productivity and margins will absolutely gallop, while firms that are merely funding AI investment without demonstrable near-term productivity gains may struggle in relative terms. The implication for investors is to favour businesses showing concrete returns from AI deployment rather than those that only promise future benefits or simply increase spending to catch up.
That diagnosis matters because headline index readings can be misleading. A small number of high-flying names can lift market-cap-weighted benchmarks even when the majority of stocks are weak. If Hayes is right, the next phase of the rally could be a broadening one with the bulk of S&P 500 constituents catching up as profit improvement spreads through companies that successfully integrate AI into operations.
What This Means for Investors
Investors trying to read the market from major indexes should be cautious. The S&P 500 and the Nasdaq may continue to be influenced by the largest-cap AI beneficiaries, but behind the scenes an improvement in earnings and margins across a wide swath of companies could drive sustained gains. That would be a classic bull-market expansion: leadership dispersing from a narrow group to a far larger cohort of stocks.
Practical takeaways from Hayess outlook include tilting portfolios toward firms with demonstrable productivity gains from AI, watching earnings revisions for signs of margin improvement, and avoiding companies that are increasing AI spending without clear paths to return on investment. Sector and stock selection could matter more than broad benchmark exposure during the transition from a narrow to a broad rally.
Hayess warning is also a reminder that headline indexes are one lens among many. Market breadth indicators measures of how many stocks are rising versus falling, or how many are making new highs can reveal underlying momentum that headline levels obscure. If breadth begins to improve, it would support the argument that the unmagnificent 493 are coming into their own.
For now, the message is that the surface-level calm of major indexes may be hiding something bigger underneath: a potential broad bull market driven by companies capturing concrete gains from AI, rather than just those receiving the spotlight.
