In recent times, a handful of major tech companies have played a significant role in driving the stock market’s impressive performance. However, the month of July witnessed an interesting shift, with stocks in the Dow outshining the seven tech stocks that have been responsible for much of the market rally.
According to Nicholas Colas, cofounder of DataTrek Research, the Dow’s strong start to the second half of the year can be attributed to the positive performance of its highest weighted holdings. This indicates that the market rally is expanding beyond Big Tech, which is seen as a bullish signal. Nonetheless, it is crucial for this trend to continue for sustained success.
Despite concerns regarding high inflation, rising interest rates, and a looming recession, all three major indexes – the Dow Jones Industrial Average, the Nasdaq Composite, and the S&P 500 – are wrapping up July with gains. These indexes have shown resilience and made significant progress over the first seven months of the year.
The Nasdaq 100, which is heavily influenced by technology companies, experienced a 3.6% increase in July, marking its fifth consecutive month of gains. This winning streak is the longest since August 2020. Furthermore, the index has soared by an impressive 44% in 2023, setting a new record for its performance in the first seven months of the year.
Investors have been keenly buying up shares of tech stocks that experienced a decline in 2022. Their enthusiasm stems from the exciting prospects of artificial intelligence and how it can shape the future of these companies, driving their stock prices higher.
Tech Stocks Propel S&P 500 to a 20% Gain in 2023
Tech stocks, often referred to as the “big seven,” have played a crucial role in driving the S&P 500’s impressive 20% gain this year. In July alone, the index saw a substantial 3.1% increase. The big seven tech stocks responsible for this growth are Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA), Alphabet (GOOGL), Amazon.com (AMZN), and Meta Platforms (META).
According to Richard Saperstein, the chief investment officer at Treasury Partners, the tech sector’s earnings and guidance have continued to surpass expectations. Saperstein believes that the artificial intelligence narrative will play a significant role in influencing multiples and driving future growth.
Saperstein emphasizes that long-term investors would be wise to stick with big tech companies, given their consistent track record of impressive earnings growth and robust cash flow. The adoption of artificial intelligence will further enhance the sector’s potential, paving the way for elevated multiples.
While the Dow has also performed well in 2023, boasting a gain of 7.3%, it falls short compared to the Nasdaq’s gains. Interestingly, despite it being dubbed the year of the tech trade, the top six stocks in the Dow outperformed the big seven tech stocks this month.
Looking specifically at July, some of the top performers in the Dow were Boeing (BA), enjoying a 13% increase; 3M (MMM), rising by 11%; Goldman Sachs (GS), which experienced a 10% increase; JPMorgan Chase (JPM), with an 8.6% gain; Intel (INTC), climbing by 7.8%; and International Business Machines (IBM), which saw a rise of 7%.
For July, Meta surged by 11%, Alphabet saw an 11% increase, Nvidia jumped by 10%, Amazon climbed by 2.6%, Tesla gained 2.2%, Apple experienced a 1.3% rise, and Microsoft declined by 1.4%.
In conclusion, the tech sector has played a pivotal role in driving the S&P 500’s overall gains in 2023. The big seven tech stocks have demonstrated their ability to consistently deliver impressive earnings growth and remarkable cash flow. As the adoption of artificial intelligence continues to fuel their success, investors are encouraged to stick with big tech for long-term gains.