By Mike Dickson, Ph.D.
Other market sectors are showing signs of life.
The S&P 500 continued its winning streak in July and is up more than 20% in 2023. That’s the index’s best performance through the first seven months of a calendar year since 1997—and a far cry from its -12.6% return during the first seven months of last year.
If investors’ excitement about this strong overall showing sometimes seems a bit muted, perhaps blame the S&P 500’s so-called “Magnificent 7” stocks. These 7 names—Tesla, Apple, Nvidia, Microsoft, Amazon, Meta and Alphabet—have soared by a whopping 62.9% as a group so far this year, leaving the vast majority of their index brothers and sisters in the dust (see the chart).
Indeed, the remaining 493 stocks in the S&P 500 have gained a mere 7.3% as a group, year-to-date. That means:
- The Magnificent 7 together have gained more than three times the market as a whole, and more than 8.5 times the other 493 stocks.
- Those 7 stocks account for $4.5 trillion (or nearly 70%) of the S&P 500’s $6.5 trillion in market growth so far this year.
But before you build a portfolio of nothing but a handful of stocks, consider this: The highly concentrated, 10-stock NYSE FANG+ Index (which includes the 7 companies above) only recently regained its high point from all the way back in November 2021. From November 2021 until November 2022, the index plummeted 49%—something to weigh if you’re salivating over the Magnificent 7’s returns this year. In contrast, the S&P 500 lost far less (-20%) during that time period.
What’s more, there are signs that the rest of the S&P 500 is waking up and getting in the game. Example: Nearly all of that 7.3% year-to-date return from the other 493 stocks has occurred since the end of May—and we’re seeing strong relative returns from sectors such as financials, energy, and retail.
The upshot: While the Magnificent 7 can’t be ignored, it may be a good idea to consider looking at the rest of the market.
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This commentary is written by Horizon Investments’ asset management team.
Past performance is not indicative of future results.
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