The S&P 500 has rallied over 12% year-to-date, but recent analysis showed that over 50% of its gains came from the index\u2019s top 7 biggest stocks. On the other hand, the remaining 493 companies have advanced just 5%, suggesting a significantly lopsided market.<\/p>\n
The S&P 500 \u2013 the stock market index that tracks the performance of the largest US-listed 500 companies \u2013 is up around 12.5% in 2023, marking a significant rebound from the 2022 lows. Although this performance is impressive, a recent analysis by stock market strategists pointed to certain risks associated with the rally.<\/p>\n
Notably, the analysis showed that the S&P 500\u2019s 2023 ascent has been driven mainly by its 7 most significant components, also known as \u2018The Magnificent Seven.\u201d These refer to the 7 most extensive mega-cap technology stocks, including Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla.<\/p>\n
According to the data, these 7 stocks collectively gained over 50% year-to-date, while the remaining 493 companies tracked by the index rose just 5%. Put differently, the index\u2019s current rally is more than halved when the 7 tech giants are excluded.<\/p>\n
\u201cThe bottom line is that if you buy the S&P 500 today, you are basically buying a handful of companies that make up 34% of the index and have an average [price-to-earnings] ratio around 50.\u201d<\/p>\n
\u2013 said Torsten Slok, chief economist at Apollo Asset Management.<\/cite><\/p>\n The Magnificent 7 comprise 28% of the S&P 500 index, with their combined weight being greater than any combined weight of the top 7 companies tracked by the index before the beginning of the 21st century. These corporations have a combined market cap of around $10.5 trillion, with the top 3 being Apple ($2.7 trillion), Microsoft ($2.3 trillion), and Alphabet ($1.6 trillion.)<\/p>\n However, the aforementioned data does not come as a surprise, given that market strategists have been warning about the risks of a lopsided stock market for months.<\/p>\n The uprise of The Magnificent Seven and the stock market indexes this year is primarily driven by the ongoing artificial intelligence (AI) boom, fueling the S&P 500 and Nasdaq Composite\u2019s outperformance compared to other major indices like DJIA and Russel 2000.<\/p>\n And while the valuation discrepancy between these companies and the rest of the US equity market did not pose many risks, it could lead to further losses now that stocks are feeling the pressure from rising Treasury yields, BTIG\u2019s Jonathan Krinsky warned. In addition, a potential slowdown in AI growth or worsening macroeconomic conditions could cause volatility among the 7 mega-cap stocks and ultimately undermine the S&P 500\u2019s overall rally.<\/p>\n This article originally appeared on The Tokenist<\/i><\/p>\n Sponsored: Find a Qualified Financial Advisor<\/b><\/p>\n Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.<\/p>\nMarket Concentration Points to Risks for Broader US Equity Market<\/h3>\n