NVIDIA is on the verge of becoming the first $6 trillion company.

Recently, technology leaders have once again shouldered the burden of driving the broader US stock market forward.

As Treasury yields fluctuate at elevated levels, capital has been pulling out of cyclical sectors and small-cap stocks, creating an extremely polarized market.

If the "Magnificent Seven" tech giants were treated as a single economy, their combined scale would already rank second globally.

This is yet another example of capital clustering into tech stocks for safety during a rising interest rate cycle.

Carrying the US market forward

After trading sideways for most of the past year, the "Magnificent Seven" have staged a rebound, injecting fresh momentum into a bull market that has been battered by rising Treasury yields and persistently high crude oil prices.

Dow Jones Market Data shows that on Tuesday, the S&P 500 closed at a record high for the first time since August 13.

The recent advance in the index has been largely driven by just a handful of mega-cap stocks — a familiar pattern that also dominated the early stages of this bull market.

The large-cap tech stocks collectively known as the "Magnificent Seven" have a combined market capitalization of $24.95 trillion, just shy of breaking through the $25 trillion mark for the first time.

Earlier this year, these mega-cap leaders showed weakness, with even the mighty NVIDIA (NASDAQ: NVDA) trading sideways for several months.

During that period, semiconductor stocks, industrials, and other names benefiting from massive capital spending on AI infrastructure enjoyed a rally.

A popular trading thesis emerged in the market: treating the "Magnificent Seven" as short targets — that is, investors would short these tech stocks and bet on their decline, while going long on semiconductors and other "bottleneck" plays in the AI infrastructure boom.

The turning point came in July, when the AI-driven momentum trade experienced a historic reversal.

Capital flooded back into mega-cap leaders.

By August, software stocks, semiconductor stocks, and large-cap tech leaders were all moving higher in tandem, as investors concluded that the tech sector was the best defense against the impact of rising rates.

The AI boom has driven these companies to dramatically expand their capital expenditures.

Data compiled by Apex Fintech and Bloomberg shows that so far in 2026, the Magnificent Seven plus SpaceX have a combined annual capital expenditure of approximately $580 billion; all other S&P 500 companies together account for roughly $1.4 trillion in capital spending.

In other words, about 30% of total S&P 500 capital expenditure comes from these eight companies, highlighting how concentrated corporate investment has become among a small group of leading firms.

Today, NVIDIA (NASDAQ: NVDA), the world's most valuable publicly traded company, is just steps away from hitting the $6 trillion threshold.

At the same time, semiconductor and software sectors have been rising in tandem recently.

This is yet another example of capital clustering into tech stocks for safety during a rising interest rate cycle.

Mike Dixon, head of research and quantitative strategy at Horizon, wrote: "These two months have seen strong gains, and they have now essentially caught up with the overall performance of the S&P 500. Frankly speaking, this is a catch-up rally."

A fractured market

As global bonds sell off and yields rise, cyclical small-caps, utilities, and homebuilders are under pressure — these sectors are highly sensitive to interest rates.

Meanwhile, the ongoing US-Iran conflict is pushing energy prices higher, and market concerns about the resulting economic ripple effects are weighing on financials and consumer discretionary sectors, which are more sensitive to macroeconomic conditions and consumer sentiment.

Ross Mayfield, investment strategist at Baird Private Wealth Management, said: "Two major cyclical headwinds have hit the segments most sensitive to interest rates and the economic environment."

Jeffrey Gundlach, the new "Bond King," compared the current stock market to a hollow tree on the verge of breaking, "on the brink of total collapse."

The founder and chief investment officer of DoubleLine Capital said: "It suddenly occurred to me that this is exactly the state of the market right now."

He noted that the S&P 500 is near historic highs, but fewer and fewer individual stocks are participating in the rally — what the market commonly calls deteriorating breadth.

By his estimates, 80% of S&P 500 constituents have fallen at least 10% from their 52-week highs, putting them in correction territory; 39% have dropped more than 20%, entering bear market territory.

"The S&P 500 is already rotten inside, but you can't see it with the naked eye. You only realize the market tree has been hollowed out when the branches come crashing down," he said.

He also worries that investors will face contagion risks from another asset class.

The investor, known for successfully predicting the 2007 US housing crash, said: "The situation in private markets is highly similar."

He explained an expanding circular investment model: private equity firms acquire private credit units, which then acquire insurance companies; those insurance companies in turn purchase loan assets from affiliated private credit institutions.

Gundlach said these private equity and private credit institutions keep assuring investors that everything is fine, and quarterly reports often show no problems.

But he gave an example: a certain private credit fund had assets with a book value of 100 at the end of last year, which was marked down to 77-78 in the first quarter — a nearly 23% decline in the underlying portfolio value.

Since such funds hold thousands of diversified loans, this means there are massive but hidden losses.

"I think these events are slowly making the market realize that things are not as fine as they seem," he said.

The Federal Reserve implemented its first rate hike in three years in September, stepping up its fight against inflation.

Interest rate futures market pricing suggests one more hike is expected this year.

As the rest of the market trembles, capital is flowing back into tech stocks.

Mayfield said: "AI infrastructure construction won't stop because of one or two rate hikes."

Mayfield noted that over the past roughly six weeks, only a small number of stocks have significantly driven the market higher, which has left many investors frustrated. "The market is highly anxious about this concentrated state of affairs. Under ideal conditions, with all else equal, everyone would prefer a broad-based rally. But as long as the largest and most influential leaders keep rising, that's still a good thing over the long term."