Key facts
- The S&P 500 has seen tepid performance since its early June record peak.
- The "Magnificent Seven" megacap stocks and the semiconductor index have pulled back significantly.
- Despite the decline in tech giants, other sectors and components of the S&P 500 have shown strength.
- Microsoft, Meta, Apple, and Amazon are scheduled to report earnings this week.
- Alphabet and Tesla shares slid after their recent earnings reports.
- The equal-weight S&P 500 has outperformed the market-cap-weighted index since early June.
The S&P 500 has experienced a period of stagnation since reaching a record peak in early June, a trend that could be significantly influenced by the upcoming quarterly earnings reports from the "Magnificent Seven" megacap technology stocks. While these AI-driven growth stocks have faltered, with the "Magnificent Seven" ETF declining over 8% and the semiconductor index pulling back more than 19% since June, other segments of the market have shown resilience. Approximately two-thirds of the S&P 500's components and eight of its 11 sectors have seen gains, suggesting a broadening market participation.
This market dynamic, where gains are spreading beyond the dominant tech giants, is viewed by many investors as a healthy sign for the continuation of the bull market. However, this broadening trend faces a critical test this week as Microsoft and Meta are set to report earnings on Wednesday, followed by Apple and Amazon on Thursday. Last week, Alphabet and Tesla both saw their shares decline after releasing their results, with Alphabet's increased capital spending plans for AI data centers raising concerns about future returns.
Analysts note that while the market can absorb individual stock weaknesses, a broader downturn in AI-related stocks could negatively impact the S&P 500's overall performance. Currently, sectors like healthcare and financials have outperformed since early June, indicating a rotation away from momentum-based trades towards perceived less expensive or underperforming areas. The equal-weight S&P 500, which gives equal importance to each stock, has gained nearly 4% since June 2, contrasting with the market-cap-weighted index's 2.4% decline. Mid- and small-cap stocks have also shown strong gains this year, further supporting the idea of a broadening market.
Despite the recent mixed performance of "Magnificent Seven" stocks, with only Apple's year-to-date gain surpassing the S&P 500's increase, these companies still hold significant sway, comprising about one-third of the index's weighting. Their upcoming earnings reports are expected to have a substantial impact on the S&P 500's direction.