Sequence Risk and S&P 500 Concentration Risk

WEEKLY MARKET UPDATE
Week Ending February 13

Weekly Market Snapshot

The S&P 500 declined -1.28% for the week.
The Nasdaq fell -1.27%.
The Russell 2000 lost -0.78%.

Utilities led all sectors, rising 7.27%. Technology continued to weaken, and Financials were the largest laggard, down -4.81%.

Inflation data came in slightly cooler than expected. Headline CPI measured 2.4% versus 2.5% expected. Core CPI registered 2.5%. The softer inflation print revived rate cut expectations late in the week, and the 2-year Treasury yield declined in response.

However, labor market data came in stronger than expected, reinforcing economic resilience and complicating the path toward rate cuts.

What Changed Beneath the Surface

The more important development this week was not the index decline, it was the continued divergence beneath it.

Approximately 74%–76% of S&P 500 companies have beaten earnings expectations, with cumulative earnings growth for the S&P 500 near 13%. Yet the index is down -0.14% year-to-date.

The primary drag has been weakness in mega-cap tech, particularly the stocks commonly referred to as the Magnificent 7. Given their heavy weighting, underperformance in a small group of large companies has offset broad earnings strength across much of the market.

In other words, earnings are growing. The index is not.

That divergence matters.

What This Means for Retirement Income Planning

Most passively managed retirement accounts hold exposure to the S&P 500 in some form. That typically means significant exposure to mega-cap technology, whether intentional or not.

When a narrow group of stocks dominates index construction, diversification can become more limited than investors realize. If those companies stall, overall portfolio growth may stall with them.

Why This Is Important For Pre- Retirees

Retirement income planning depends not only on long-term returns, but on the path those returns take, especially in the early years of withdrawals.

If growth-heavy segments underperform while withdrawals are occurring, sequence-of-returns risk increases. Even when broader earnings are healthy, concentration risk can create uneven portfolio behavior.

A flat index during a period of solid earnings growth is a reminder that index performance and economic fundamentals do not always move in lockstep. And retirement income strategies built on index assumptions alone may carry hidden structural exposure.

Structural Takeaway

Markets are rarely driven by headlines alone, the headlines are a bi-product. Often, the most meaningful risks come from concentration beneath the surface, especially when passive exposure creates more dependence on a narrow segment than investors recognize.

Diversification is not about owning many stocks. It is about reducing reliance on any single driver of returns.

Market forecasting is difficult. Timing risk is what disrupts retirement income.

Stress-testing a portfolio using a Sequence of Returns Risk Calculator can clarify how concentrated growth exposure affects early-withdrawal outcomes under different market paths. Use our free calculator below to stress your portfolio.

Income durability is built through structure, not prediction.