An AI-driven bull market means a heavy tech bias at an index level.
BY PHIL ROSEN, CO-FOUNDER AND CEO, OPENING BELL MEDIA; CHIEF MARKET STRATEGIST, PROCAP FINANCIAL @PHILROSENN
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The stock market has hit 28 new record highs this year but most investors do not realize just how few winners are doing the heavy lifting.
Nine of the 11 S&P 500 sectors are lagging the index so far this year. Only technology and energy are outperforming, but because the former now accounts for nearly 40 percent of the market, buying the S&P 500 today is simply a bullish call on tech.
That bias means technology has accounted for roughly 12 points of the S&P 500’s 13.6-point return this year, according to an analysis from Silvia Insights.
Meanwhile, because energy is only about 3 percent of the market, its outperformance — fueled by elevated oil prices and the power demand underpinning the AI boom — barely registers at an index level.
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As it happens, excluding tech and energy, the median sector is barely up 1% year-to-date, and four of the nine are negative.
That said, buying into a market that lives or dies by technology isn’t such a dreadful thing in the age of AI. It’s true that the entire index could falter if a handful of mega-caps lose ground, but it’s also the case that the technology sector is cheaper than it’s been in years.
The chart below from Tatiana Darie, a macro strategist at Bloomberg, illustrates the point. She told me on Full Signal that the spread between the S&P 500 and information technology sector’s forward P/E ratios has fallen to levels last seen at the start of the pandemic.