After weathering a tumultuous 2022 marred by record-high inflation and a hawkish stance from Federal Reserve policymakers, the US stock market has undergone a remarkable turnaround in 2023.
Improved sentiment prevails as a result of a confluence of factors, including reduced inflationary pressures, a more measured approach to interest rate hikes, the resilience of the US economy, and the explosive expansion of the artificial intelligence (AI) sector.
This resurgence is vividly mirrored in the S&P 500‘s robust performance, posting a commendable 13% gain so far this year.
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What’s driving the S&P’s rally?
Interestingly, however, it appears that the bulk of the index’s 2023 growth comes from just a handful of stocks.
Notably, the S&P 493 – which refers to the benchmark S&P 500 market index without 7 blue-chip tech stocks – gained just 4% this year.
Meanwhile, the S&P 7, which consists of the biggest 7 S&P 500 companies, soared by a remarkable 52%, The Kobeissi Letter highlighted on September 23.
These include Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Nvidia (NASDAQ: NVDA), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOGL), Meta (NASDAQ: META), and Tesla (NASDAQ: TSLA).
“In other words, if you buy the S&P 500 today, you are basically buying a handful of companies that are driving the entire market.”
– noted The Kobeissi Letter, a well-known commentary on global capital markets.
“The 7 largest stocks in the S&P 500 now account for a massive 34% of the entire index’s value.”
– it added.
In summary, without these 7 big tech stocks, the S&P 500’s performance this year would be nearly unchanged.
Why is the discrepancy so big?
It’s quite simple. All of the 7 companies driving the S&P 500 rally in 2023 have one thing in common – AI.
Simply put, the ascent of these growth stocks this year can be largely attributed to the ongoing AI boom led by groundbreaking generative models, most notably OpenAI’s ChatGPT.
One could argue that some of these stocks are not as reliant on AI technology. Tesla, for example, could be one such example, although even the electric vehicle (EV) giant is using the technology in its Autopilot systems.
All things considered, Kobeissi’s analysis raises a crucial question: “What happens if the AI hype fades?”
Certainly, this question is relevant, considering that AI has played a pivotal role in the impressive growth of the mentioned companies in 2023. As such, a deceleration in AI’s momentum could undoubtedly impact their earnings and stock market performances in the foreseeable future.
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