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The
S&P 500 is at record levels mostly due to a handful of megacap
stocks such as Microsoft and Nvidia, fueling concerns that
2024's rally could dissipate if the sentiment changes around
those select AI-linked shares.
The spread in total returns between the S&P 500 and the
benchmark index's equal-weighted peer widened to 10.21% in the
first half of the year, according to data from S&P Dow Jones
Indices.
"High valuations and lofty expectations lead to more market
risks. If they fail to meet their lofty growth expectations,
there will be a pullback in major indexes," Cetera Investment
Management's chief market strategist Brian Klimke said.
The spread between the S&P 500 and its equal-weighted
counterpart was the most since 2009, when tech stocks rebounded
from a bruising selloff during the 2007-08 financial crisis.
The S&P 500's top 10 stocks are now starting to approach levels
seen during the dotcom bubble when their weightage in the index
accounted for a little over 40%, Klimke added.
Excluding Nvidia, whose shares have more than doubled, the S&P
500 is up about 10% in the first half of 2024, and without the
so-called "Magnificent Seven" stocks the benchmark index's gains
are just over 6%, S&P Dow Jones Indices data showed.
Amid such concerns around lofty valuations of tech stocks, which
many are now comparing to the dotcom bubble two decades ago,
market participants see value in broadening their portfolio by
focusing on the relatively cheaper sectors.
Dakota Wealth Management's senior portfolio manager Robert
Pavlik sees value in financials, healthcare and energy stocks,
among others.
"Focus on picking the best stocks and less attention to the
indices," Pavlik added.
Still, many expect the gap between the two indexes to narrow
going ahead, as any interest rate cut by the U.S. Federal
Reserve could prop up small- and mid-cap stocks.
(Reporting by Ankika Biswas in Bengaluru; Editing by Shounak
Dasgupta)
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