TIMOTHY A. CLARY / Getty
- Twenty stocks concentrated in tech have driven 90% of gains in the S&P 500 this year.
- The surge is due to easing concerns around interest rates amid uncertainty in financial stocks.
- Still, the tech rally may fade, as a strong job market data may force further interest hikes.
Twenty stocks are almost entirely responsible for the $2.36 trillion in maket value added to the S&P 500 so far this year, according to the Financial Times.
The surge in value — accounting for 90% of the index's gains — demonstrates how recent banking turmoil eased shareholder fears of aggressive interest rate hikes and allowed for a Big Tech rally.
"People are looking for safety and comfort given the cross-currents in the market, and tech gives them plenty of ease," JPMorgan's Jack Atherton told FT.
Out of the 20 stocks, some of the biggest market cap expansions included the chipmaker Nvidia, which has gained 83% so far this year, and Meta, jumping by 75%. Apple, topping the S&P by index weight, surged by 28%.
Together, these megacap stocks are responsible for the $2.05 trillion of market value added to S&P 500 year-to-date, compared to $320 billion of value created by the index's other stocks.
It marks a sharp turnaround from 2022, when the tech sector was especially battered as the Federal Reserve hiked interest rates in order to combat high inflation.
But as bank runs dominated headlines in March, investors flocked to tech, which had limited exposure to the financial sector and was already gaining momentum from new trends, such as artificial intelligence.
At the same time — with banks tightening their lending standards to avoid a further contagion — the Fed moderated its aggressive tightening policy. Despite expectations for a larger hike, the central bank lifted interest by only a quarter of a percentage point in March.
However, it remains to be seen for how long these gains may last, as last month's strong labor market indicates that the Fed may not be completely done lifting interest rates, Economist Mohamed El-Erian said.
Meanwhile, Morgan Stanley's Mike Wilson has previously warned against putting too much faith in the tech rally, as markets have not priced in earnings pressures.