According to the Financial Times, the S&P 500's market value has increased by $2.36 trillion this year (as of April 8), and nearly all of it is due to the success of just twenty stocks, which have accounted for 90% of the gains.
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While there were recent concerns about the banking sector, the surge in the value of the S&P 500, driven by many tech firms, was due to investors believing the banking situation may move the Fed to stop rate hikes.
The Financial Times quoted JPMorgan's Jack Atherton as saying, “People are looking for safety and comfort given the cross-currents in the market, and tech gives them plenty of ease.”
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When the article was published, out of the 20 stocks, chipmaker Nvidia showed a significant increase in market capitalization, rising by 83% this year. Meanwhile, Meta also experienced a notable jump of 75% (it is now up 94% YTD following its latest earnings release). Meanwhile, Apple, being the top company in terms of index weight in the S&P, saw a surge of 28% (now at 29%).
The report states that the mega-cap stocks had contributed $2.05 trillion to the S&P 500's market value so far this year, while the other stocks in the index only added $320 billion.
The rise represents a sharp turnaround from last year when tech stocks were hit hard, with the Federal Reserve having to raise interest rates to combat soaring inflation.
However, the recent increase in banking sector fears and hopes of rate hikes being paused resulted in investors flocking to tech, which was already gaining traction from new trends, such as artificial intelligence. It also bodes well for potential near-term moves in the tech sector, with many feeling that May will represent the last hike by the Federal Reserve before it holds rates steady.
However, some believe that given the strong labour market and still high inflation, the Fed may not be completely done with the current rate hike path, and see potential downside ahead for tech stocks.
Even so, the recent positive earnings from Meta Platforms, Alphabet (Google), Microsoft, and Amazon may see the rally last a little longer, at least.
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