Most of the stock market gains this year have been powered by a handful of tech-focused names that have posted outsized increases, according to Bank of America. Call it the S & P 7 — or, as the firm’s chief investment strategist Michael Hartnett labels them, the “Magnificent Seven.” Together, the stock bloc has contributed 8.8 percentage points of the S & P 500 ‘s total 10% increase (as of Thursday’s close) for all of 2023. Nvidia has been the biggest contributor, adding 2.1 percentage points to the large-cap index’s gains. Apple and Microsoft are next at 1.7 points and 1.6 points respectively, followed by Facebook-parent Meta at 1.1 point, according to BofA calculations. The rest of the index, the “S & P 493,” is made up of a broad swath of companies across a variety of sectors that has added just 1.1 points. In May alone, the seven stocks posted a gain of 16%, thanks to Nvidia’s earnings-fueled acceleration. Losers for the month included bitcoin, down 8%. Meanwhile, regional banks lost 9%, and China-related stocks were off 9%. Hartnett noted in his weekly report on market money flows that while Big Tech pulled the S & P 500 from around 3,800 at the beginning of 2023 to above 4,200 presently, “now you need something else to catch.” In fact, Hartnett said a contrarian trade for June is to sell the “baby bubble” of artificial intelligence companies and to buy the Hang Seng Index based on a “China stimulus” as a bullish June surprise while the nation struggles with Covid. However, he noted that the firm has remained “bearish (and wrong)” on the S & P 500 as investors are “in no mood to fade our” 4,200 price target on the index. The downbeat outlook is based in part on an expectation that the Federal Reserve will have to keep monetary policy tight in the face of elevated inflation. Bank of America thinks it’s more likely that the benchmark fed funds rate will be closer to 6% than 3% from its current targeted range of 5%-5.25%. “Monetary policy remains the ‘big dog’ & set to tighten in coming months… biggest reason we are not capitulating into risk despite price action,” Hartnett wrote.
