This year’s stock market rally has been driven by a small group of tech giants, and experts believe this is a result of the AI theme rather than a negative aspect. The director of the BlackRock Investment Institute, Jean Boivin, stated that this phenomenon is not a defect, and they continue to be overweight on US equities. Nvidia has been a standout performer, accounting for nearly one-third of the S&P 500’s gains, with other tech giants like Apple, Alphabet, Microsoft, Amazon, Goal, and Broadcom also contributing significantly to the main index’s growth.
While there are concerns that the market might be at risk if these tech companies stop performing well, research by Morgan Stanley’s Mike Wilson suggests otherwise. Wilson’s data shows that only about 20% of the top 500 stocks are outperforming the broader index consistently, the lowest percentage since 1965. Despite this narrow breadth, Wilson’s work indicates that historically, the S&P 500 has risen by an average of 4% over the next six months in similar scenarios.
Wilson also points out that high-quality large-cap sectors are likely to see continued expansion, especially in the current environment of high-interest rates. Investors are gravitating towards these market cap stocks that have shown resilience in the face of rising rates and are seeing solid earnings growth compared to smaller peers. Recent updates to S&P 500 year-end targets by Wall Street firms reflect a similar sentiment, citing technology’s outperformance as a key factor in the index’s stronger performance than expected.
Overall, experts believe that the current trend of a few tech giants driving the market rally is not necessarily a concern for future returns. While the narrow breadth of outperforming stocks may persist, it is not seen as a significant headwind. The focus on high-quality, large-cap sectors is expected to continue, supported by strong earnings growth and the current interest rate environment. Investors are likely to maintain their interest in these sectors, leading to continued market strength in the coming months.
Article Source
https://finance.yahoo.com/news/stock-market-today-nasdaq-set-for-gains-as-nvidia-turns-a-corner-114604392.html
