The stock market gains so far in 2023 have been pleasing, with the S&P 500 index of large-company US stocks gaining 9.7% through the end of May and advancing further during the early days of June.
Investor enthusiasm about the potential benefits to companies from Artificial Intelligence (AI) has been the main driver recently of the S&P 500’s gain.
According to research from Goldman Sachs, the seven largest technology-company constituents in the index – Apple, Microsoft, Alphabet (owner of Google), Amazon, Nvidia, Tesla, and Meta (owner of Facebook) currently make up about 27% of the S&P 500 index. These ‘tech seven’ have surged 53%, compared with a net zero gain for the remaining 493 stocks.
While this very sizable outperformance of just a few stocks may be unusual, a wide divergence in performance among sectors of the market is typical from year to year. Also, market leadership tends to rotate on a sector basis over time.
While many investors find it helpful to have some perspective on evolving market trends, it’s important to keep in mind that a diversified portfolio is a time-tested way to participate in the positive market trends of today, and limit downside when the market leaders of the moment eventually fall out of favor.