The S&P 500 Fell. The Average Stock Rose. Here’s Our A-Rated Pick for New Money.
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| By Gavin Magor |
If you own an S&P 500 index fund, Thursday probably looked like a bad day on your statement.
The index fell 1.2%, its worst day since July.
But the average stock inside it went up.
That gap tells you more about your money than the headline does.
It tells you who you're really betting on.
Ten Listings, 39 Cents of Every Dollar
An index fund feels like owning the whole market.
In practice, you mostly own a handful of giants.
As of Oct. 10, its 10 largest listings made up about 39% of the S&P 500.
Put another way, roughly 39 cents of every dollar you invest goes to them.
Nvidia alone was close to 8%.
Most of those giants are spending heavily on artificial intelligence or selling the chips that power it.
The Average Stock Had a Different Day
On Thursday, the Invesco S&P 500 Equal Weight ETF (RSP) rose 0.7%.
That fund owns the same companies as the index, each in equal measure.
On the New York Stock Exchange, 2,319 stocks rose.
Only 1,596 fell.
So the market didn't sell off on Thursday.
A few very large companies did.
The Day the AI Bill Came Due, Meta Showed Its Hand
Meta Platforms (META) reported its third-quarter results after the market closed on Wednesday.
Revenue rose 26% from a year earlier.
But Meta spent $34.9 billion on capital projects in the quarter, including finance leases.
That pushed its free cash flow, the cash left after that investment, below zero.
It was Meta's first cash outflow in more than a decade.
It now expects to spend $135 billion to $145 billion on capital projects this year.
Meta also disclosed about $825 billion in future lease and contract commitments.
That's up from about $700 billion in July.
Investors sent the shares down nearly 7% on Thursday.
Nvidia's Chief Said the Quiet Part Out Loud
The same day, Nvidia's Jensen Huang told CNBC that AI cloud companies are short of money.
He said demand for their computing power is "off the charts."
But he also said the need for capital far outstrips the capital available, and that the gap will get solved.
Investors heard the warning louder than the reassurance.
The Philadelphia Semiconductor Index fell 6.7%.
Every one of its 30 stocks closed lower.
A Financing Scare, Not an Earnings Problem
Most of the companies that reported on Thursday beat expectations.
The AI names fell anyway.
The worry is who pays for the AI build-out, and at what cost.
When a company spends more than it brings in, it has to borrow or draw down its savings.
Meta has the savings, with $82.5 billion in cash and marketable securities.
Many of the smaller AI cloud firms don't.
That's what Huang was describing.
Even so, the price of insuring Meta's own debt against default touched a record during Thursday's session.
Where the Money Went Instead … Into Things People Buy Every Week
Consumer staples led all sectors on Thursday, up 3.3%.
Utilities gained 2.1%.
Health care added 1.3%.
Technology was the worst sector, down 3.3%.
… And Into Bonds
Investors also bought Treasurys.
The 10-year Treasury yield fell back below 5%.
It was the largest one-day drop since March 2023.
That's what money does when it's nervous but not panicking.
What This Means for You
This wasn't a crash.
It was a rotation, as money moved from the AI leaders into steadier businesses.
For index fund owners, that's uncomfortable, because the fund is built the other way around.
The bigger a stock gets, the more of your money it holds.
I expect more days like Thursday as the AI spending bills keep arriving.
In the Weiss Ultimate Portfolio, which I edit, most of our holdings make their money well away from the AI build-out.
That's deliberate.
Our Ratings Say It's Not a Quality Problem. The Giants Still Earn Their Grades
Our ratings don't treat Thursday as a verdict on the AI leaders.
Nvidia (NVDA) earns a Weiss rating of B+, a BUY.
Meta earns a B-, also a BUY.
So the problem isn't that these are bad companies.
It's that many index investors own far more of them than they realize.
The Easy Fixes Only Earn a HOLD
The equal-weight fund held up better on Thursday.
But it earns a C+, a HOLD, from us.
The best-known index fund of all, the State Street SPDR S&P 500 ETF Trust (SPY), also earns a C+, a HOLD.
Neither is where I'd put new money right now.
I'd rather pick highly rated businesses directly.
Two Steady Names Our Ratings Favor
Johnson & Johnson (JNJ) earns a B+, a BUY.
It raised its 2026 sales and earnings outlook on Oct. 13.
Third-quarter sales grew 5.9% from a year earlier.
People need their medicines whether AI stocks rise or fall.
CME Group (CME) earns a B, a BUY.
It runs the exchanges where investors trade futures to protect themselves on days like Thursday.
JPMorgan upgraded it to Overweight on Thursday, and the shares rose 3.5%.
Overweight is Wall Street shorthand for a stock the analyst expects to beat its peers.
Let the Ratings Do the Sorting
Every rating in this report came from the live Weiss Ratings pages on Friday morning.
Weiss Ratings Plus puts that same work in front of you, with real-time ratings, instant alerts and exclusive analysis.
It's how you'll know the day a giant in your index fund slips a grade.
Click here to see what Weiss Ratings Plus can do for you.
Coca-Cola: The Weekly Shop, With an A
Thursday's money went into the things people buy every week.
Nothing on that list is more ordinary than a can of Coke.
The Coca-Cola Company (KO) earns an A from us, a BUY.
It's the highest grade of any stock in this report.
It has returned more than 33% this year, including dividends.
In its second quarter, it sold 5% more drinks by volume than a year earlier.
In July, it raised its full-year outlook.
It now expects comparable earnings per share to grow 9% to 10% this year.
Comparable earnings leave out one-time items, so they show how the core business is really doing.
Coca-Cola doesn't need to borrow hundreds of billions of dollars to build data centers.
Its shares have also tended to move independently of the broader market.
It reports third-quarter results before the market opens on Oct. 27.
For my part, I expect Coca-Cola to keep earning its grade as the AI spending bills come due.
Coca-Cola is my pick for new money in this market.
What I'm Watching
- Coca-Cola's Oct. 27 report, for whether its volume growth holds up.
- The Federal Reserve (Fed) meeting on Oct. 27-28, after traders priced about 90% odds of no change on Thursday.
- Alphabet and Microsoft on Oct. 29, for whether their AI spending plans grow again.
- Amazon and Apple on Oct. 30, the last of the giants to report this month.
- Whether the equal-weight fund keeps beating the S&P 500 for more than a day or two.
- Any change in our ratings on Nvidia or Meta, still the clearest sign of whether the AI spending is paying off.
Bottom Line
Thursday was a bad day for your index fund, but a decent one for the average stock inside it.
That's your reminder that an index fund is mostly a bet on its biggest names.
Keep the AI leaders our ratings still favor, but don't let them crowd out everything else.
Put new money into highly rated businesses outside AI, starting with Coca-Cola.
Cheers!
Gavin
