February 7, 2024
· The “Magnificent Seven,” stocks of Alphabet, Amazon.com, Apple, Meta, Microsoft, Nvidia, and Tesla now make up nearly 27% of the S&P 500’s total market capitalization[i]
· These outsize weightings have taken the S&P 500 to new all-time highs, while also stretching its valuation – the index currently trades at a forward P/E multiple over 19X compared to its long-term average of roughly 15.6X[ii]
· According to Invesco, who runs the largest S&P 500 equal-weight ETF by assets, the market-cap S&P 500 mirrors 45% of the Nasdaq 100 – double the percentage it was a decade ago[iii]
· Each of these stocks significantly outperformed the broader market in 2023, and due to their outsize weightings, they were responsible for some 62% of the S&P 500’s total return[iv]
· While the S&P 500 has climbed to new highs on the backs of these stocks, the broader market is not participating to the same extent – the New York Stock Exchange’s advance/decline line, which measures the number of stocks that are increasing compared to those that are decreasing, has failed to set a new high[v]
· Small-cap stocks, which tend to be a more accurate barometer of market health, significantly underperformed last year – the Russell 2000 rose just over 15% compared to more than 24% for the S&P 500[vi]
· Additionally, the Russell 2000 still sits more than 20% below its all-time high that was set in November 2021[vii]
· One important large-cap index that has not set a new all-time high: the Dow Jones Transportation Average, which is still some 15% below the high set in November 2021[viii]
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[i] www.ssga.com, “SPDR S&P 500 ETF Trust,” January 30, 2024
[ii] www.reuters.com, “Megacap US tech results pivotal for market that is at record highs,” January 23, 2024
[iii] www.barrons.com, “Plain-Vanilla S&P 500 Index Funds Are Out. Here’s What In.,” January 24, 2024
[iv] www.reuters.com, “Megacap US tech results pivotal for market that is at record highs,” January 23, 2024
[v] www.oxlive.dorseywright.com, “A/D NYSE Stocks,” February 1, 2024
[vi] www.reuters.com, “Wall Street ends slightly lower, capping blockbuster year,” December 29, 2023
[vii] www.cnbc.com, “Russell 2000 Index,” January 31, 2024
[viii] www.cnbc.com, “Dow Jones Transportation Average,” January 31, 2024