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- Big Tech is contributing less to the S&P 500's gains, DataTrek Research noted.
- In the third quarter so far, those stocks account for 6% of the index's growth.
- That's as non-tech sectors are growing more prominent, with financials in the lead.
Big Tech's hold on the S&P 500 is finally loosening, as other sectors strengthen their presence on the index, according to Nicholas Colas, cofounder of DataTrek Research.
While those stocks accounted for virtually all the S&P 500's gains at the start of the year, Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta have contributed less towards the index's returns since then.
"The rest of the US equity market is finally catching up, which is great, but that means Q3 gains may not be as robust as Q2 unless Big Tech has another leg higher," Colas said in a Monday note.
Following first-quarter strength, bullish investors continued to rally around these firms, given excitement over artificial intelligence utilized by these companies. In the second quarter, Big Tech was responsible for 73% of S&P 500 gains, Colas wrote.
However, this ratio has already fallen to 6% so far in July, as other sectors make their way into the market spotlight.
Financials led the rally of non-Big Tech, accounting for 32% of S&P 500 returns so far this quarter. Though the note highlights this sector as best positioned for near-term gains, the index is further boosted by health care, industrials, energy, consumer staples, utilities, and real estate.
However, DataTrek also notes that these sectors are not gaining on fundamental performance — especially as non-Big Tech earnings expectations trend downwards — but on bets on a valuation expansion.
"Hope for an end to Fed rate hikes while the US economy is still growing is the reason for the current rally. This underpins market confidence in near term earnings stability and eventual growth off a still-high base of corporate margins," Colas wrote.
Meanwhile, investors can gear up for some guidance from Big Tech this week, as Alphabet and Microsoft publish earnings on Tuesday, followed by Meta's Wednesday report.