The tech-driven bull market
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As the S&P 500 hits yet another new record high, all credit must be given to technology stocks — and specifically to Nvidia and the other megacaps that have been driving it higher.
Why it matters: The so-called magnificent seven stocks (Apple, Nvidia, Microsoft, Meta, Alphabet, Amazon, Tesla) have accounted for about 75% of this year's gains in the S&P 500, per Counterpoint Global — on top of more than half the gains in 2023.
Follow the money: If tech is stripped out of the index, the S&P 500 is still very close to its all-time high on May 17. But on an absolute level, it's significantly less impressive — up 69% over the past five years, compared to a 106% gain once tech stocks are included.
- So far this year the S&P 500 is up 16% overall, and up 9% without technology stocks.
Between the lines: The degree to which the S&P 500 is concentrated in a handful of trillion-dollar companies can be seen either as a worrying development — overexposure to a single sector — or as an encouraging sign that the rest of the market still has a substantial amount of upside.
- Up until now, investors' excitement about AI has mainly manifested in tech stocks. The next phase of the boom could be that the rest of corporate America will be revalued upwards on the basis of broad-based AI-induced productivity improvements.
The bottom line: U.S. stocks have been outperforming in large part because America is home to most of the world's most important technology giants. If the rest of the market starts to catch up, the same dynamic could boost stocks globally, too.
