Most stocks have been laggards this year, but that could be starting to change.
It’s no secret that a minute group of tech stocks has essentially been responsible for the S&P 500’s 21.5% return this year. Fueled by the potential of artificial intelligence, shares of the so-called “Magnificent 7”—Amazon, Apple, Google, Meta, Microsoft, Nvidia, and Tesla—have soared 68.8% as a group in 2023.
What about the other 493 stocks in the S&P 500? They’re up just 7.5%, year to date.
But here’s something many investors haven’t noticed: Those laggards are perking up.
- The “Meager 493” have rallied 5.2% since November 10th.
- The “Magnificent 7” are up just 1.4% during that time.
- Tesla is on the verge of falling out of the top 7 stocks by market cap, as Berkshire Hathaway (RIP Charlie Munger) is now nearly equal in weight.
The upshot: Market breadth—the number of stocks advancing versus the number declining, and an important driver of overall market returns—is improving as the rest of the index looks to catch up with those seven tech overperformers.
To be sure, this bump from the 493 is a new development. While we expect market breadth to keep improving at least through the end of the year, we are watching for signs of weakness in this emerging trend. In 2024, investors will likely need to see stronger fundamentals from these firms (or disappointing results from the “Magnificent 7” companies) for the 493 to build on the current rally.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States
This commentary is written by Horizon Investments’ asset management team.
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