The S&P 500 (^GSPC) is above 5,000 for the first time in history. And again, the stocks that drive stock price gains are the largest members of the benchmark average.
Amazon (AMZN), Meta (META), Microsoft (MSFT), and Nvidia (NVDA) have gained nearly 20% year-to-date, according to analysis by . Jared Blikre of Yahoo Finance. The returns of these four stocks alone account for about 69% of the S&P 500’s gains this year.
But not all of the so-called “Magnificent Seven” tech stocks are off to a strong start. Apple (AAPL), Alphabet (GOOGL, GOOG), and Tesla (TSLA) have had rocky starts to the year. This is a concern for some on Wall Street, as the decline in the number of stocks has led to a rise in major average stock prices.
Fortunately for investors, even if the top stocks have peaked, the market will It’s probably still going up.
A recent analysis by Brian Belsky, chief investment strategist at BMO Capital Markets, found that indexes have historically delivered strong returns in the following year, even when the top stocks that drive a large portion of the market decline. It has been shown It was pretty good.
According to Belski’s chart, since 1992; The S&P 500 index rose an average of 14.3% in a year after the benchmark average’s top 10 stocks peaked in their contribution. His 2001, in the aftermath of the tech bubble, was the only time the S&P 500 posted a negative return the following year.
“While some investors may be concerned that the market is likely to struggle without these stocks leading the way, our analysis shows that the S&P 500 has It shows that we are on track to move past the peak,” Belsky wrote in a memo. Customers on Tuesday.
Ben Snyder, an equity strategist at Goldman Sachs, said the top level is low. The stocks that are pushing up the major stock indexes are now unusually high, and the idea that a few winners are leading the S&P 500’s rally is not a new concept. In fact, Snyder argued that in the long run this is not a bug but a typical feature of benchmark indexes.
“That’s part of the reason why the S&P 500 and the U.S. stock market as a whole has been so strong over the years. … Emerging companies grow, they get more weight in the index, and the market rises with them,” the analyst said. said. told Yahoo Finance. “And eventually, disruptors will emerge, new technologies will emerge, new businesses will emerge, and they will become even bigger. And now it will be their turn to lift the market. .”
For the S&P to reach a new record without a major contribution from the Magnificent Seven, it would require market expansion as other laggard sectors begin to regain momentum. This trend has recently been seen in areas such as Large Cap Healthcare (XLV), which is up 17% since its October low, and Financial Select Sector ETF (XLF), which is up 24% since its October low. It will be done.
In the fourth quarter, 70% of S&P 500 companies beat analysts’ earnings per share estimates, higher than the historical average of 63%, said Oson Kwon, U.S. and Canadian equity strategist at Bank of America. pointed to broader earnings growth as a positive catalyst. forward.
“You’re watching, right? [an] even higher percentage [of] “Companies have had more positive earnings this quarter than they did last quarter. In fact, their profit margins have improved as well, so that’s a virtuous cycle for stocks,” Kwon told Yahoo Finance on Tuesday. Ta.
Snyder believes this expansion will be the most likely scenario this year if investors gain confidence in the Fed’s plan to cut rates.
“As investors become less concerned about when the Fed will start cutting interest rates, I think a lot of the companies outside of the Magnificent Seven will have pretty solid earnings growth. “It’s going to make things better,” Snyder said.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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