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The resilience of the U.S. economy is giving investors more confidence to move beyond the Magnificent Seven tech stocks and tap into a corner of the market that has lagged. The expansion of this trend is contributing to the rise in non-tech stocks, indicating a positive development for the market in the long term. Over the past month, there have been notable changes in performance across his 11 sectors of the S&P 500. Classic cyclical sectors such as materials and industrials outperformed after lagging behind tech sectors at the beginning of the year. Conversely, the information technology and communications services sector, the star of the market last year and early 2024, has taken a relative backseat. The best-performing sector over the period was Materials, up 7.55% through Tuesday’s close, followed by Energy and Industrials, up 4.9% and 4.1%, respectively. Financials, another sector supported by the strong economy, rose 4% over the past month. Information technology, on the other hand, occupied his fifth place and rose 3.8%, thanks in part to a strong performance in Tuesday’s session. Telecommunications services have remained flat over the past month, making it the worst-performing sector at the time. The wide participation in the rally was notable because of Wall Street’s longstanding concerns about narrow market leadership due to the dominance of the Magnificent Seven. Stocks outside the Big Tech conglomerate have accounted for much of the market’s recent gains, on the back of a stable U.S. economy, delayed expectations for Federal Reserve rate cuts, and prospects for more even profit growth in the second half of the year. That’s reassuring. This growing market trend is also reflected in the club’s portfolio. Financial stock Wells Fargo soared 19.4% last month, in part after clearing a key regulatory hurdle, and Linde, a member of the materials sector, rose 12.9% last month, making it the third-best performer among club stocks. Ta. Over the same period, oil and gas producer Cotera Energy rose 9.2%. Industry name Eaton and chemical giant DuPont have also outperformed the market over the past month. Sales in technology and communications services were held back by weakness in club holdings, including Apple and Alphabet, respectively. These two stocks are among the members of the Magnificent Seven that have recently fallen on hard times. Tesla, an electric car maker in the consumer goods sector, suffered the most. Understanding S&P 500 Sectors His 11 sectors in the S&P 500 represent the different industries that drive the U.S. economy. Some of the designations can be confusing because companies referred to as tech stocks in conversation and financial media span multiple sectors. For example, the information technology sector is home to companies such as Apple, Microsoft, and Nvidia, while Alphabet and Meta Platforms are found in communications services. These five stocks, along with Amazon in the consumer goods sector, make up what the club calls the Super 6, consisting of all of the Magnificent Seven except Tesla. Club names that focus on industrial end markets, such as DuPont and Linde, are considered chemical stocks and belong to the materials sector. Indeed, information technology and communication services continues to be the top-performing sector in 2024, continuing its strong performance in 2023, increasing by nearly 12% from 13%. Nvidia, the darling of artificial intelligence and leader of the MagSeven, has been the portfolio’s No. 1 stock both year-to-date and last month, up 85.6% and 27.4%, respectively, helping drive the overall performance of the S&P 500. Masu. . The equal-weighted index’s recent performance over the past month reflects broader market strength compared to the traditional S&P 500 index, which weights companies by market value. Because of this, huge multi-trillion dollar companies are valued, such as: Microsoft, Apple, and Nvidia have significant influence on the index. The equally weighted S&P 500 index, in which each stock has the same weight, rose 5.4% over the past month, while the traditional market-cap weighted index rose 4.5%. This outperformance means that more stocks outside the mega-cap complex are participating in the rally, in contrast to the narrow market observed for most of 2023 and the first half of 2024. . For example, the &P 500 market-cap weighted S shares rose 24.2% last year, while the equal-weighted index rose only 11.6% in 2023. .SPXEW .SPX 1M Mountain Comparison of the S&P 500 Equal Weight Index and the S&P 500 over the past month. Recent changes have helped. , the equal-weighted index hit its highest level in more than two years last week. Meanwhile, the market-capitalization-weighted S&P 500 index hit a new 2022 all-time high in mid-January and has hit multiple new highs since then, most recently on Tuesday. The small-cap Russell 2000 index has also outperformed the S&P 500 over the past month, another sign that investors are focusing on a broader group of stocks. Improving conditions in the U.S. economy are the main driver of market change, reflected in expectations for Fed interest rate cuts. Earlier this year, investors expected the Fed to cut interest rates six times in 2024, starting in March or May. The first rate cut is not expected until June, according to the CME FedWatch tool. According to Wolf Research, the market is pricing in three to four cuts this year. The Fed has held interest rates steady between 5.25% and 5.5% since its July 2023 meeting, the highest level in more than 20 years. The Labor Department’s February consumer price index report released Tuesday did not change Wall Street’s expectations for a Fed rate cut this year, even though it came in slightly better than expected. But the Fed will meet next week to provide the market with an updated look at how many, if any, rate cuts the central bank expects to make this year. As the latest data confirms the view that the US economy is strong, the expected number of interest rate cuts in 2024 has declined, forcing markets to confront the idea that the situation could remain ‘for longer’. It’s gone. For example, the nonfarm payrolls report released Friday showed the economy added 275,000 jobs in February, more than expected by 200,000, showing the resilience of the labor market. There is. The report’s higher-than-expected unemployment rate and lower-than-expected wage inflation numbers show the economy is slowly slowing, which helps fight inflation, but is on the brink of recession. That’s certainly not the case. Indeed, the consensus forecast for U.S. real gross domestic product (GDP) this year continues to trend upward, currently at an annualized growth rate of 2.1%, RBC Capital Markets strategists said in a recent client note. . Going into the new year, the consensus was in the mid-1% range. RBC claimed that a “broad-based improvement” in GDP forecasts “supports the continued change of leadership in the stock market.” Beyond AI optimism, one of the reasons the Magnificent Seven has been driving the market rally has been the group’s profit growth, which has supported the stock’s rise. In fact, in a note to clients this week, Canaccord Genuity strategists cited LSEG data analysis and found that without the contribution of the Magnificent Seven, operating profit growth for S&P 500 companies in 2023 would be negative. He said he would have done so. “The good news is that consensus expectations call for a more balanced contribution. [the second half of 2024]”This supports our thesis that the overall market will outperform mega-cap stocks heading into the end of this year and beyond,” Canaccord wrote. Encouragingly, overall earnings expectations for the S&P 500 have also increased recently. America on Tuesday raised its per-share forecast to $250 from $235, suggesting 12% year-over-year growth. , generally supports the outlook for companies in more buoyant sectors. Even though we continue to own Magnificent stock, we continue to hold large amounts of non-tech stocks, including Linde in the materials sector and electronics provider Eaton in the industrial sector. It’s 7 minus Tesla. Linde and Eaton are among our 12 core holdings. The core of the problem is diversification. It’s difficult to predict with certainty when market rotation will occur, but the trick is to own stocks across a variety of industries and sectors without over-investing. Go to MagSeven — Help your portfolio participate in the expanding bull market we’ve seen over the past month or so. (Jim Cramer’s charitable trusts are long AAPL, NVDA. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, trade before Jim makes trades. Receive alerts. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in a charitable trust’s portfolio. If Jim talks about a stock on his CNBC TV, he will wait 72 hours before executing the trade after issuing a trade alert. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
Visitors surround the Charging Bull statue near the New York Stock Exchange on June 29, 2023.
Victor J. Blue | Bloomberg | Getty Images
The resilience of the U.S. economy is giving investors more confidence to move beyond the “Magnificent Seven” tech stocks and tap into a corner of the market that has lagged. The expansion of this trend is contributing to the rise in non-tech stocks, indicating a positive development for the market in the long term.
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