With market commentators whispering about potential bubbles, a look at how much the S&P 500 index’s 2023 rally has been driven by surging technology shares might be a bit unsettling for some.
“Interestingly, this continued tech frenzy has caused the narrowest rally of the century,” said Jim Reid, strategist at Deutsche Bank, in a Friday note.
As the chart above from Deutsche Bank shows, the tech-led surge has seen the S&P 500
SPX,
which is weighted according to market capitalization, lead an equal-weighted version of the large-cap benchmark. Through Thursday, the S&P 500 was up 8.1% in 2023 versus a 1.2% fall for the equal-weighted measure, an outperformance of 9.3 percentage points. That’s on track for the largest margin since a 9.3 percentage point beat over the full year in 1999 and the 16.3 percentage point beat seen in 1998.
Market capitalization is the value of a company traded on the stock market, calculated by total shares outstanding multiplied by the share price. In a market-cap weighted index like the S&P 500, each component is weighted according to its market capitalization.
“As you all know, the 1998/99 beats were due to the tech bubble back then. In 1998, the IT sub sector returned +77.6% with the S&P 500 up a still sizeable +26.7%,” Reid wrote.
At the same time, analysts have warned that the AI-inspired tech gains, which were boosted Thursday as shares of Nvidia Corp.
NVDA,
jumped more than 24% following a blowout earnings forecast, may have further to run in the short term.
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The S&P 500’s outperformance was extended on Friday. It’s now besting the equal-weighted index by just over 10 percentage points. That’s the largest outperformance versus he equal weighted index year-to-date through May 26 on record, based on data going back to December 1989, according to Dow Jones Market Data.
Related: AI buzz pushes tech stocks higher – but here’s why the ripple effect in stocks may still be ‘narrow’
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