Image Source: PixabayThe financial market backdrop has been witnessing a tectonic shift thanks to a more optimistic economic outlook and dovish Fed cues. Both inspire investors to broaden their focus beyond the massive growth and technology stocks. This pivot is reshaping the U.S. stock market dynamics, previously dominated by a handful of major players.More broadly, the Magnificent Seven – Apple, Nvidia, Alphabet, Tesla, Microsoft, Meta Platforms and Amazon.com – have made up 40% of the S&P 500’s gain as of Mar 21, 2024, according to S&P Dow Jones Indices. That compares with a share of over 60% last year, per Reuters. Investors are now focusing on other parts of the investing backdrop.Fed’s Dovish Stance Spurs Market ConfidenceThe Federal Reserve’s recent expressions of confidence in handling inflation and maintaining the projections of three rate cuts (each worth 25-bps) this year have played a crucial role in encouraging this broader market interest.With an improved forecast for U.S. economic growth, the Fed’s outlook suggests a resilient economy capable of approaching inflation targets without causing a recession. This perspective has bolstered investor confidence, leading to increased investments in sectors like financials, and industrials. These areas are deemed safe havens amidst likely lower rates.Diversifying Beyond Mega-CapsUnlike the previous year’s trend where investors clung to the ‘Magnificent Seven’ mega-caps for innovations, AI mania and security amidst economic uncertainty, the current year shows a marked shift. Sectors such as financials, industrials, and energy are surpassing the S&P 500’s gains, indicating a more distributed market leadership. This rules out the fears of any correction and over-centration of some stocks.A Tendency to Shift Away from Artificial Intelligence and Regulatory Risks?While Nvidia and Microsoft shares have surged due to the artificial intelligence boom, Apple and Tesla have seen declines, partly due to regulatory challenges, pointing out to the defective dynamics within the mega-cap category and leading investors to look for opportunities elsewhere in the market.Top-Ranked ETFs in FocusInvesco AI and Next Gen Software ETF (IGPT – Free Report) – Zacks Rank #1The underlying STOXX World AC NexGen Software Development Index is comprised of companies with significant exposure to technologies or products that contribute to future software development through direct revenue. The fund charges 60 bps in fees.Invesco S&P MidCap Momentum ETF (XMMO – Free Report) – Zacks Rank #2The underlying S&P Midcap 400 Momentum Index is composed of securities with strong growth characteristics selected from the Russell Midcap Index. The fund charges 34 bps in fees.Invesco Dorsey Wright Industrials Momentum ETF (PRN – Free Report) – Zacks Rank #2The underlying Dorsey Wright Industrials Technical Leaders Index identifies companies that are showing relative strength and are composed of at least 30 common stocks from a universe of approximately 3,000 common stocks traded on US exchanges. The fund charges 60 bps in fees.Financial Select Sector SPDR ETF (XLF – Free Report) – Zacks Rank #1The underlying Financial Select Sector Index seeks to provide an effective representation of the financial sector of the S&P 500 Index. The fund charges 9 bps in fees.iShares U.S. Equity Factor ETF (LRGF – Free Report) – Zacks Rank #2The underlying STOXX U.S. Equity Factor Index composes of U.S. large and mid-capitalization stocks that have favorable exposure to target style factors subject to constraints. The fund charges 8 bps in fees.More By This Author:Building On The Bull: Stars Align For Above-Average Returns 3 REITs To Pick As The Fed Indicates 3 Rate Cuts In 2024Keep A Tab On These 3 Broker-Recommended Energy Stocks