The S&P 500 (^GSPC) is set to hit another record close on Tuesday and close above 6,400 for the first time ever.
As has been the case for much of the bull market that started in October 2022, large-cap technology stocks are driving the market’s latest leg higher.
“Investors are back to their usual embrace of US large cap Tech stocks over large caps in general and the move is not yet overdone,” DataTrek Research Co-Founder Jessica Rabe wrote in a Tuesday research note.
Rabe highlighted that the top 20 stocks by market cap in the index have risen 40.6% since the bottom, far outpacing the benchmark index’s 27.9% gain over the same time period. This means the top 20 holdings have helped pull the index higher, while the other 480 stocks have been “a net drag” on the index in relative terms.
Nearly all of the stocks in the group that have outperformed the S&P 500 index — which includes Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL, GOOG), Meta (META), Broadcom (AVGO), Tesla (TSLA), JPMorgan (JPM), Netflix (NFLX), Oracle (ORCL), and Palantir (PLTR) — have some sort of AI growth story attached to their stock story.
“Ultimately, Tech companies that leverage disruptive innovation — such as gen AI — drive US equity returns,” Rabe wrote.
And when looking at the market’s rebound on a sector basis there’s still an AI tilt. Only Information Technology (XLK) and Industrials (XLI) have outperformed the index since the market bottom.
Citi US equity strategist Scott Chronert, who recently raised his year-end S&P 500 target to 6,600, told Yahoo Finance the Industrials rally is really just an extension of the AI trade as those companies benefit from increased AI spending.
“You’re seeing this broader AI influence really permeate the index at a bigger level than just tech,” Chronert said.
