Despite the underperformance of several sectors, the SPDR S&P 500 ETF Trust (NYSE:SPY) has already exceeded its average annual return in just over six months. Amid unprecedented gains by big tech companies, how much can the S&P 500’s performance be attributed to the dominance of just a few companies?
The Data: A post on social media platform X used data from Goldman Sachs to portray a stark dichotomy between Big Tech companies and the median S&P 500 company.
- Microsoft Corp (NASDAQ:MSFT), up 19.68%.
- NVIDIA Corp (NASDAQ:NVDA), up 175.22%.
- Amazon.com Inc (NASDAQ:AMZN), up 23.19%.
- Alphabet Inc (NASDAQ:GOOGL), up 27.22%.
- and Meta Platforms Inc (NASDAQ:META), up 43.95%.
These five companies saw an astounding 57% average earnings growth year-over-year in 2023. The tech giants therefore lapped the median S&P 500 company, which grew by 4%, by over 14 times.
Looking ahead to 2024 expectations, the five companies are projected to grow 37% year-over-year, over six times greater than the median company’s 6%. The gap is projected to narrow further in 2025 and 2026 to an 8% and 4% difference in each year, respectively.
Why it Matters: The data reflects a large disconnect between the performance of a few companies dependent on artificial intelligence (AI) and the rest of the market.
The companies mentioned above must sustain their projected earnings growth to justify their sky-high valuations. Some experts believe that some megacap companies are entering “bubble-ish territory,” due for a market correction.
The Magnificent Seven’s historically high weighting in the S&P 500 makes the U.S. economy heavily dependent on just a few companies.
Photo: Moondance from Pixabay
