The “Magnificent 7” – mega-tech stocks that led the market higher

In a time when many investors talk about the next US recession, the stock market ignores all the traditional warnings and keeps marching higher. For example, the S&P 500 index is up over +11% YTD, a spectacular performance given all the recessionary fears in the market.

It is like investors might spend all of 2023 talking about a recession that is unlikely to happen. How else can anyone explain the inverted yield curve and the LEI indicators pointing to a recession and the stock market rallies?

Either there will be no recession, or something is out of sync with the market. One may argue for both.

First, most of the S&P 500 gains come from seven stocks only, so the tech sector is out of sync with the market. Second, a new bull market started, and in this case, there will be no recession, and the rest of the S&P 500 components will play catch up with the leading mega-tech stocks.

Investing can be active or passive – or a mix between the two. Active investors believe they can beat the market and selectively buy or sell stocks and compare their performance with a benchmark, typically the S&P 500 index.

Those active investors betting on the tech sector in 2023 have seen seven mega-tech stocks delivering 53% return YTD:

• Meta Platforms (NASDAQ:META)
• Amazon (NASDAQ:AMZN)
• Alphabet (NASDAQ:GOOG)
• Apple (NASDAQ:AAPL)
• Nvidia (NASDAQ:NVDA)
• Microsoft (NASDAQ:MSFT)
• Tesla (NASDAQ:TSLA)

But passive investors did well YTD. By tracking the S&P 500 index, one would be up +11% YTD without the hustle of owning a particular stock.

As for the rest of the 493 components of the S&P 500 index, they are flat on the year.

One thing that everyone is afraid to ask is why stocks are up when they should be down? Therefore, to many investors, it is only a matter of time before a market crash happens.

That may be true, but such opinions may have to consider the fact that the market is more than 20% off its October 2022 lows. Therefore, a new bull market started, and, in this case – what if the mega-tech stocks lead?

Even more interesting is that once stocks are off by more than 20% from the lows, one year later, they have never been lower. On average, they delivered 28.2%, and even the six-month returns were impressive.

All in all, the chances are that stocks may have more upside than is currently priced in. And that is even more likely if the mega-tech stocks’ rally continues.

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