Vantage View

Since we first issued our Outlook 2024 in January and in subsequent April and July newsletters, we have been confident in our prediction for the inevitable comeback of an equally weighted investment strategy. For almost two years now, market returns have been disproportionately led by a small group of mega-cap technology stocks, the so-called “Magnificent Seven.” The fever may have finally broken as the average stock delivered a stellar third quarter return relative to the overall market.

In our Outlook 2024 newsletter published in January, we predicted a high range of 5,400 to 5,700 for the S&P 500 over the coming year or two. While satisfied that we correctly saw the uptrend, we are surprised by the accelerated pace at which our optimistic threshold has been reached. Indeed, the S&P 500 closed the first half at 5,460, an impressive six-month advance of 14.48%. Indicative of continued lopsided leadership by mega-cap technology, the NASDAQ composite delivered an even more remarkable 18.13% return. Meanwhile, the Dow Jones Industrial Average and Russell 2000 indices languished with returns of 3.79% and 1.73% respectively.

Building on last year’s mega-cap momentum, the stock market rallied higher in the first three months of 2024, with quarterly gains for the Dow Jones Industrial Average, S&P 500, and NASDAQ Composite at 5.6%, 10.2% and 9.1% respectively. Interestingly, this is the fourth time in the last 25 years and only the seventeenth time in the last 75 years where the S&P 500 has gained more than 8% during the first quarter. Impressively, especially for those with a bullish posture, the S&P 500 lost ground over the rest of the year in only one out of the previous 16 times with an average gain of 9.7% for the final three quarters of the year.

Powered by spectacular gains in the so called “Magnificent Seven,” the stock market delivered surprisingly strong gains in 2023, with the S&P 500, Dow Jones Industrial Average and NASDAQ Composite sporting respective gains of 24.23%, 13.70% and 43.42% for the year. After a dismal 2022 took the same indices down -19.44%, -8.78% and -33.10% respectively, these important market barometers are now flattish over the last two years. Indicative of the extraordinary concentration of this year’s gains in a limited number of mega-cap technology stocks, an astounding 72% of S&P 500 constituents underperformed the index in 2023. Indeed, the approximate 75% collective jump in Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta trounced the average stock and the Magnificent Seven now account for almost 30% of the market capitalization of the S&P 500, the highest concentration of any seven companies on record.