This year’s S&P 500 rally is being driven by a small group of mega-cap stocks, as investors flood back into them after last year’s tech rout. That could be a red flag about the market’s overall health, says LPL Financial strategist Jeffery Buchbinder, according to an article in Forbes. He warned in a recent note to the firm’s clients that the concentrated group of tech stocks leading the rebound could suggest “a less healthy rally than one with broader participation” and that tech is still “stretched” thin.
The seven stocks that are fueling the rally are well-known tech giants Alphabet, Apple, Meta, Nvidia, Amazon, Microsoft, and Tesla. Together they’ve gained over $2.1 trillion in market capitalization so far this year, according to FactSet data that is cited in the article. Just those seven stocks make up 88% of the S&P 500’s gains this year, boosting the index $2.4 trillion and 7% so far in 2023. Of the seven companies, Apple has seen the biggest gain with $549 billion, but all seven are up more than 20% in 2023, with at least $175 billion in market cap gains each.
Buchbinder isn’t the only one sounding a cautious note. Michael Wilson of Morgan Stanley also recently warned against investing in the tech sector until the overall market bottom becomes clear, noting that tech might not be the defensive strategy that many have long believed it to be as the banking system remains shaky. But the Nasdaq is up 15% so far this year, compared to its 33% decline last year driven largely by Meta and Tesla’s massive losses. And small-cap stocks have had a rocky 2023 so far; the Russell 2000, dragged down by plummeting bank stocks, has flatlined, the article details. Meanwhile, the 10 largest companies in the S&P 500 accounted for 29%, up from 25.6% at the end of last year.