A few stocks driving the rise in US stocks Analyst: This is not a bad thing

A few large tech stocks once again dominate the US stock market, but this may not necessarily be a bad thing. In fact, according to a recent report by Michael Mauboussin, Director of Consilient Research at Counterpoint Global, and Dan Callahan, Vice President, the S&P 500 Index has often performed more strongly during periods of increasing market concentration since the 1960s. Many short sellers like to complain that the current "Big Seven" stocks enjoy a significant valuation premium compared to similar companies in the top ten most valuable companies in the US. However, these companies also capture a major share of corporate profits. In other words, the current economic fundamentals prove that the premium investors are paying is justified. Whether the high expectations for future earnings growth will ultimately materialize is another matter. According to the Zhitong Finance APP, to prove this point, Mauboussin and Callahan estimate that, within the scope of their study (including all companies listed on the New York Stock Exchange, NASDAQ, and American Stock Exchange), the total economic profit of US listed companies in 2023 is $481 billion. The top ten companies by market value contribute $331 billion. Therefore, while the top ten stocks account for 27% of the total market value, they represent nearly 70% of the profits. Furthermore, despite the current concentration in the US market being higher than at any time since the 1960s, it is still lower than the concentration in many other developed markets. As of the end of last year, the concentration of the top ten stocks in Switzerland, France, Australia, Germany, and even Canada was higher than in the US. Since the beginning of 2024, bullish investors have hoped for a rotation away from the leadership of large tech companies, but according to Mauboussin and Callahan's research, this rotation may not be necessary for the stock market to continue hitting new highs. According to DataTrek, as of the end of May, the "Big Seven" members, namely Apple (AAPL.US), Microsoft (MSFT.US), Nvidia (NVDA.US), Alphabet Inc (GOOGL.US), Meta Platforms (META.US), Amazon (AMZN.US), and Tesla (TSLA.US), have driven 76% of the S&P 500's gains so far this year. Mauboussin and Callahan point out that these same stocks powered over half of the index returns in 2023. Since the beginning of 2023, market concentration has been rapidly increasing. Since then, the S&P 500 has experienced above-average returns, rising over 24% in 2023 (excluding dividends). According to FactSet data, the index has risen over 11% since the beginning of 2024. In contrast, based on Dow Jones market data, since its launch on March 4, 1957, the S&P 500 Index has had an annualized price return rate of 7.3%