* Declines in semiconductors, tech drag on S&P 500 since

June record high

* About two-thirds of index stocks higher in that time,

indicating market broadening

* S&P 500 equal weight outpacing standard index YTD, another

broadening sign

By Lewis Krauskopf

NEW YORK, July 29 (Reuters) - The S&P 500 has

struggled to make further headway since its early June record

peak, but that tepid performance belies churning beneath the

market's surface that could take on greater importance with this

week's megacap earnings reports.

The small number of technology and other heavyweight stocks

at the heart of the AI trade that have been driving the bull

market are now faltering. The "Magnificent Seven" megacap stocks

exchange-traded fund has declined over 8% since the

June peak, while the Philadelphia SE Semiconductor index,

which soared on AI-related optimism earlier in the year, has

pulled back more than 19%.

That has acted as a drag on the S&P 500, which has dipped

over 2% since June 2. At the same time, though, other parts of

the market have perked up. About two-thirds of the benchmark's

components have gained since the June record high, and eight of

its 11 sectors are higher.

That market broadening is a tradeoff many investors can

stomach, so long as the major tech-heavy indexes used as market

gauges avoid deeper declines. Broader gains could usher in a

more durable phase of the bull market that is less reliant on

the heavyweight stocks.

"It would be incredibly hard for us to outrun a bear market

in the Mag 7," said Mark Hackett, chief market strategist for

Nationwide. "But the fact that we've seen such an aggressive

pullback in this group and the market has been flat-ish during

that period, I view that as incredibly healthy."

MAG 7 IN EARNINGS SPOTLIGHT

This tradeoff could be tested this week, when four of the

Mag 7 report quarterly results: Microsoft ( MSFT ) and Meta

report after the bell on Wednesday, with Apple ( AAPL )

and Amazon ( AMZN ) reporting on Thursday.

Two other Mag 7 companies, Alphabet and Tesla

, kicked off results for the group last week, with both

companies' shares sliding after their respective results.

Along with Microsoft ( MSFT ), Amazon ( AMZN ) and Meta, Google parent

Alphabet is one of the so-called hyperscalers - a clutch of tech

companies whose massive capital spending on AI data centers has

underpinned this year's AI rally, boosting semiconductors and

other companies involved in the buildout.

Alphabet further increased its spending plans last week, but

that raised concerns about whether it would reap sufficient

returns on its investments.

The market can absorb a "bad day for one of the names,"

Hackett said. However, he added: "I don't think the S&P can ...

even remain kind of where it is if there's a flushing of the AI

story."

ROTATION, NOT SELLING, FOR NOW

Since the June 2 high, healthcare and financials

have been the best-performing sectors, rising 14% and

12% respectively.

"There's a rotation that has been going on out of the

momentum-based trades like technology, and has shifted,

especially since the end of the quarter, to other areas of the

market that are perceived as less expensive or having

underperformed," said Robert Pavlik, senior portfolio manager at

Dakota Wealth Management.

In another sign of broadening, the equal-weight version of

the S&P 500, which is a gauge of the average stock in

the index, has gained nearly 4% since June 2, compared with the

2.4% decline in the more heavyweight-influenced standard S&P

500.

"We're not seeing selling. We're just seeing money move from

one area of the market to another," said Jack Janasiewicz, lead

portfolio strategist at Natixis Investment Managers Solutions.

"That's pretty healthy, right? That's what a bull market is

based on."

MAG 7 STOCKS STILL HAVE HEFT

For 2026 overall, the equal-weight S&P 500 has climbed more

than 13% against an 8.5% rise for the standard S&P 500, closing

some of the latter's performance advantage during the bull run

that began in October 2022.

Indexes representing mid- and small-cap stocks have gained

about 15% and 19%, respectively, this year, another sign of

investors gravitating beyond megacap stocks.

One reason for that rotation is that while Mag 7 companies'

profit growth has outpaced the rest of the S&P 500 in recent

years, that gap has closed, investors said.

"Leadership is broadening beneath the surface, even though

that strength is not fully reflected in the headline index,"

said King Lip, chief strategist at BakerAvenue Wealth

Management. "These moves make sense from a fundamental

perspective - earnings growth in the broader market is

forecasted to have higher earnings growth than the megacap tech

stocks by year-end."

Mag 7 stocks have posted mixed performance in 2026, with

only Apple's ( AAPL ) 25% year-to-date gain surpassing the increase for

the S&P 500.

Still, the stocks retain outsized influence, accounting on a

combined basis for about one-third of the weighting of the

overall index.

"You're talking about in a single week, some serious market

cap," said Chuck Carlson, CEO at Horizon Investment Services in

Hammond, Indiana. "They're going to have an impact on the S&P

500 one way or the other."