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Big Tech stocks led US stock gains in the first half of 2023, fueled by an explosion of interest in AI.
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But the rally is now broadening out to other sectors – June was the best month this year for the S&P 500 index.
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A gauge of US stock-market breadth just hit the highest level since February.
For most of 2023, the dominant story for equity investors has been the rise of artificial intelligence – which helped fuel a stunning surge in “Magnificent Seven” Big Tech stocks including Apple, Microsoft and Nvidia.
But there are signs the rally is now broadening out to other sectors.
June was the benchmark S&P 500 index’s best month since October, with a 6.5% gain that was close on the heels of the FANG+ group of New York Stock Exchange-listed Big Tech companies.
Suddenly, the word on analysts’ lips is “breadth” – used to describe a rally that lifts a wide distribution of stocks, rather than a handful of select names. The proportion of S&P 500 stocks trading above their 200-day average – an indicator of market breadth – climbed as high as 65% this week, the highest since mid-February.
“We’ve kind of moved on a little bit [from the Magnificent Seven],” Minerva Analysis founder Kathleen Brooks told Insider in a recent interview.
“I know they’re still really important for markets, but we’re actually seeing a broadening in performance, with a number of names from different sectors hitting 52-week highs,” she added.
A glance at a list of the 10 best-performing stocks year-to-date backs up Brooks’ belief that the 2023 rally is no longer just about tech – with General Electric, homebuilder PulteGroup, and three cruise lines featuring alongside Nvidia, Meta Platforms, and Tesla.
One factor driving the surge could be investors seeing Big Tech’s massive gains from the first six months of the year and deciding to sell their shares for profit, before diversifying into other sectors, according to UBS.
“Investor enthusiasm over the potential of artificial intelligence to boost the technology sector also supported year-to-date equity gains,” the Swiss bank’s CIO Mark Haefele said in a recent research note.
“But, there were signs in June that mega-cap AI equities are consolidating, and that the rally is broadening to laggards,” he added.
Positive economic data has also helped non-tech stocks, with inflation starting to cool toward the Federal Reserve’s 2% target and unemployment holding firm at under 4% in May in the face of the central bank’s aggressive interest-rate hikes.
With much of Wall Street warning about a potential recession, there are no guarantees that these gains will last – but for now, the broadening beyond tech looks like good news for investors.
“It’s a sign of a really healthy market, and a return to passive investing,” Brooks said. “Far from being at risk of collapsing, stocks are actually looking healthier than they did when the AI rally really kicked off.”
Read the original article on Business Insider