Tech Giants' Outsized Gains Distort S&P 500 Returns
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The S&P 500 index is being driven by 7 mega-cap tech stocks known as the "Magnificent Seven" - Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. Their outsized gains are lifting the overall index due to their huge market capitalization.
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These 7 stocks have gained 117% since October 2022, far outpacing the broader index. Their market cap has risen over 60%.
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Due to index weighting, their outperformance accounts for over 60% of the S&P 500's returns over the past 12 months. Tesla alone accounts for nearly 3% of the index's gains.
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The dominance of mega-cap tech creates index distortions - the S&P can rise even if most constituent companies fall. This dynamic is starting to shift as more companies join the rally.
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Understanding the tech giants' impact is key to interpreting index signals about the broader market, economy, and individual companies underneath the surface.