What’s going on here?
Nvidia and other tech giants, the ‘Magnificent 7’, are propping up the S&P 500, but overall stock performance remains tepid, leaving investors eager for broader gains in late 2024.
What does this mean?
The S&P 500’s 16% rise this year is largely thanks to megacap stocks like Nvidia, Microsoft, and Apple, which are benefiting from the AI boom. Yet, this rally is quite narrow: just 24% of S&P 500 stocks outperformed the index in the first half of the year, marking the third-narrowest six-month span since 1986. This raises concerns that the rally’s fragility could cause a market decline if these few big players stumble. Meanwhile, the equal-weighted S&P 500 index is up about 4%, highlighting broader market sluggishness, with 40% of its components down for the year.
Why should I care?
For markets: Tech giants carry the weight.
The market’s reliance on the ‘Magnificent 7’ is risky—any setbacks for these giants could drag down indexes. Investors will be closely monitoring the upcoming earnings season, starting with major banks like JPMorgan and Citigroup on July 12, to see if other companies can gain traction. With sectors like Information Technology and Communication Services outperforming, the hope is that earnings growth will spread, lifting more stocks.
The bigger picture: Hoping for a soft landing.
Investors are optimistic that more companies will report stronger earnings in the latter half of 2024, driving stocks with more moderate valuations higher. Analysts from B Riley Wealth and Wells Fargo Investment Institute believe key economic data, such as Federal Reserve Chair Jerome Powell’s testimony, the monthly Consumer Price Index, and Q2 earnings reports, could trigger broader market gains. However, concerns over weak consumer spending and persistent inflation remain, potentially tempering expectations.
