Topline
A small grouping of mega-cap stocks are behind almost all of the S&P 500’s 2023 rally, as investors pile back into the stocks battered last year and shun smaller-cap stocks amid macroeconomic and banking uncertainty, though one analyst cautioned about what the concentrated rally means for the market’s broader health.
Key Facts
Silicon Valley titans Alphabet, Apple, Meta and Nvidia, Seattle’s Amazon and Microsoft and electric vehicle giant Tesla gained more than $2.1 trillion in market capitalization year-to-date through Thursday’s market close cumulatively, according to FactSet data.
Incredibly, those seven stocks account for 88% of the S&P’s 2023 gains, with the index up $2.4 trillion this year and 7% overall.
Apple’s $549 billion in added market cap is by far the greatest of the seven stalwarts, though each stock is up more than 20% year-to-date with more than $175 billion in market cap gains apiece.
In a recent note to clients, LPL Financial strategist Jeffrey Buchbinder said “narrow leadership” in the S&P “reflects a less healthy rally than one with broader participation,” pointing out there’s a lack of technical basis for the recovery as forward-looking metrics for tech remain “stretched” thin.
And Morgan Stanley analyst Michael Wilson noted last week historical data disagrees with the notion that big tech companies are a defensive play, as their gains in recent weeks as cracks in the U.S. banking system emerged may suggest, cautioning against investing in the sector until there’s a clear bottoming among the broader market.
Key Background
Last year was dismal for tech, with the Nasdaq composite sliding 33%, captained by Meta and Tesla’s more than 60% losses. The brutal stretch coincided with the Federal Reserve hiking interest rates to their highest level in more than a decade, hitting growth-focused tech firms, which are thought to be more sensitive than their peers to the sharp rise in borrowing costs. The Nasdaq is up some 15% year-to-date, outpacing the S&P. Smaller cap stocks, on the other hand, have struggled. The Russell 2000 is flat this year, largely weighed down by the crashes of various bank stocks as several regional banks failed and others grappled with significant deposit outflows. Buchbinder noted smaller firms’ smaller balance sheets often lead to greater “struggle[s]
with tightening financial conditions.”
Big Number
29%. That’s how much of the S&P’s total market value the 10 largest companies accounted for at Thursday’s close, compared to 25.6% at the end of 2022.
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