Dell falls as soft current quarter guide offsets Q2 beat, full-year outlook lift
Investing.com -- The powerful rally in U.S. equities has been led by the so-called Magnificent Seven since the bull market began in October 2022.
Spearheaded by their strong rally, the tech-heavy Nasdaq 100 index has surged nearly 118% since the start of that bull run, easily outpacing other benchmarks.
Their dominance has also reshaped the broader market. “The Mag-7’s market capitalization share of the S&P 500 has doubled during the current bull market from 16% to 32%,” Yardeni Research said in a Tuesday report.
That concentration, however, does not mean the rest of the market has stood still. Yardeni Research points out that the S&P 493, along with mid- and small-caps, have also logged strong gains, though not as eye-catching as the mega-caps.
Recent weeks have shown more signs of participation broadening. The percentages of S&P 500 companies with positive three-month changes in forward revenues and earnings “have increased significantly,” which suggests the S&P 493 may benefit going forward.
Yardeni also highlights the diverging paths of large-caps and smaller peers. The S&P 1000 SMidCaps have lagged since 2022, weighed down by years of underperformance dating back to the mid-2010s.
They have bounced recently on expectations of the Federal Reserve easing, but Yardeni cautions that this trend may be temporary.
“We aren’t convinced they are set to outperform the S&P 500 on a sustainable basis. However, we would take some of the profits in the large-cap sectors we’ve favored and rotate into their SMidCap equivalents, which have lower valuation multiples,” the firm wrote.
The report also draws parallels with the late 1990s, when Fed rate cuts during the Long-Term Capital Management crisis helped inflate the Tech Bubble.
Another rate cut is widely expected at the September 17 FOMC meeting, which could revive what Yardeni calls the “Fed Put” and fuel another melt-up in equities.
Still, the backdrop differs this time. The forward earnings contribution from technology and communication services is currently 36.9% of the S&P 500 total, Yardeni notes, versus 24% at the 2000 peak, suggesting fundamentals are firmer than during the dot-com era.