Magnificent seven stocks are keeping indices afloat

The so-called magnificent seven – tech giants Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta – may have slipped lately, but they are still keeping the US stock market aloft.

At the end of May, the seven stocks accounted for almost all of the S&P 500′s 2023 gains, with the other 493 stocks in the index flat. Widespread concerns about bad market breadth subsequently abated, as the rally finally broadened out.

Now, breadth concerns have resurfaced. Schwab strategist Liz Ann Sonders notes that while the S&P 500 is still up 11 per cent this year, this is entirely due to the magnificent seven, which are up 81 per cent. In contrast, an equal-weighted version of the S&P 500, which weighs each component stock equally, is flat.

The median S&P 500 stock has fallen more than 2 per cent this year, says Bespoke Investment, with over half the stocks in the index declining.

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Widespread weakness is also evident in other indices, with both the large-cap Dow Jones Industrial Average and the small-cap Russell 2000 giving up their gains for the year.

The takeaway: this is a lopsided and concentrated market, with the S&P 500′s gains masking widespread weakness underneath the surface.