The S&P 500 (^GSPC) hit another record close on Tuesday and ended the trading day above 6,400 for the first time ever.
As has been the case for much of the bull market that started in October 2022, large-cap technology stocks are driving the market’s latest leg higher. This was on full display Tuesday with Meta (META) and Palantir (PLTR) rising more than 2% to close at record highs.
“Investors are back to their usual embrace of US large cap Tech stocks over large caps in general and the move is not yet overdone,” DataTrek Research co-founder Jessica Rabe wrote in a Tuesday research note.
Rabe highlighted how the top 20 stocks by market cap in the index have risen an average of 40.6% since the bottom, far outpacing the benchmark index’s 27.9% gain over the same time period. This means the top 20 holdings have helped pull the index higher, while the other 480 stocks have been “a net drag” on the index in relative terms.
Nearly all of the names in the group that have outperformed the S&P 500 index — which includes Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL, GOOG), Meta, Broadcom (AVGO), Tesla (TSLA), JPMorgan (JPM), Netflix (NFLX), Oracle (ORCL), and Palantir — have some sort of AI growth story attached to the stock story.
“Ultimately, Tech companies that leverage disruptive innovation — such as gen AI — drive US equity returns,” Rabe wrote.
And when looking at the market’s rebound on a sector basis, there’s an AI tilt. Only Information Technology (XLK) and Industrials (XLI) have outperformed the index since the market bottom.
Citi US equity strategist Scott Chronert, who recently raised his year-end S&P 500 target to 6,600, told Yahoo Finance the Industrials rally is really just an extension of the AI trade, as those companies benefit from increased AI spending.
“You’re seeing this broader AI influence really permeate the index at a bigger level than just tech,” Chronert said.
And Chronert believes the longer-term opportunity in the market remains in identifying companies that will eventually benefit from AI boosting margins and productivity within their businesses.
“We’re still probably early innings in terms of the AI infrastructure buildout,” Chronert said. “The bigger, longer term play is going to be more companies incorporating AI to better get their own company production and profitability metrics sort of in their own strategic up and to the right pattern.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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