The Rest of the Stock Market is Catching Up to Big Tech
Persistent optimism about an economic soft landing has buoyed investors’ hopes about companies of all sizes.
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The S&P 500 has 493 other stocks, too. Investors have started to notice.
After a relatively dismal 2023 and start of 2024, many stocks in the broader market are finally beginning to catch up — and in some cases surpass — the Magnificent Seven tech players that almost single-handedly lifted the entire market to its recent all-time highs, according to a Wall Street Journal analysis published Monday.
The Dog Days Are Over
Cracks already started to show earlier this year in the foundation of the seven-company bloc — Microsoft, Meta, Apple, Amazon, Alphabet, Nvidia, and Tesla — that once fueled the market rally, with Apple and Tesla in particular beginning to slip. But persistent optimism over a so-called soft-landing (despite the frequent optimism-tempering language of Fed Chair Jerome Powell) has lifted smaller players to fill the vacuum and continue a broader runup in equities.
The S&P 500 is up around 33% in the past year and closed last Thursday just a half-point shy of a record. Hope for taming inflation and looming rate cuts has helped lift companies of all stripes, especially what could be called Small or Mid Tech players:
- Tech stocks overall are up over 10% this year, according to WSJ analysis. The AI-hype train has trickled down to Super Micro Computers, up 300%, while Carvana, up 61%, can finally see an escape path from the stranglehold of high-interest rates.
- Meanwhile, the Russell 2000, which tracks the type of small-cap companies hit particularly hard by inflation and high borrowing costs, is up nearly 30% since an October fallow period.
“With inflation coming down and the Fed no longer fighting you, it’s just a better long-term case for risky assets,” Joseph Amato, chief investment officer at Neuberger Berman, told the WSJ.
Over Their Skis: Still, after largely renouncing growth-at-all-cost strategies last year in favor of, you know, actual profits, investors may be beginning to relapse. Companies in the S&P 500 are trading at an average price-to-earnings ratio of around 21, per the WSJ, above typical norms and approaching 2022’s level of hyper-optimism. Sometimes there’s no better drug than hope.