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2023 share returns have been safely found — but only in the biggest tech stocks.
YTD to Nov. 3rd, 2023, the tech-heavy Nasdaq was up +27.0%
The broader S&P500 index was up +12.5%
The narrow DJIA index was up +2.1%, and
The small-cap RUT index was down -2.7% YTD
The historical expected S&P500 annual return (using data from 1930 to 2021)?
This is +7.9%.
I. The Very Big, and Strong, Info Tech Stocks
A Zacks Research System chart (next) shows you something important re tech, too.
Multiple trillions of central bank liquidity and the trillion-dollar market caps of these mega-cap tech stocks keep pushing the major U.S. benchmarks higher.
But they have very high forward 12M P/E multiples.
A strong mega-cap P/E valuation bias is incorporated in the S&P500 and the Nasdaq.
The market capitalizations (led by AAPL at $2.6T & MSFT at $2.4T) are charted below.
Image Source: Zacks Investment Research
Over the last 10 full years? Four mega-cap tech stocks drove the U.S. large-cap indexes (AAPL, MSFT, GOOGL and AMZN).
Tesla and NVIDIA? They are relatively newer entrants to this class of mega-cap stocks.
2023? Meta was surging, until recently.
In sum, this so-called Magnificent Seven (Amazon, Apple, Google (Alphabet), Meta, Microsoft, Nvidia and Tesla) make up more than a quarter of the S&P500, and their stellar performance has driven the U.S. stock market's outperformance, so far this year.
Image Source: Zacks Investment Research
For the bulls, the COVID pandemic accelerated online shopping and remote working. These aggregate demand factors were already in place before 2020.
But 2020-era events probably moved the amount of Internet-driven activity ahead by 5 years.
For the bears, be aware. The Biden administration and the E.U. have announced anti-competition litigation. Furthermore, the ‘return-to-life’ experience focus has relatively slowed Internet and screen-based spending.
II. Zacks November Sector/Industry/Company Telescope
With Q3 earnings reports came abrupt change to Zacks Sector/Industry rankings.
Top sectors were Info Tech, Energy, and Utilities, and Info Tech. Surprisingly, two of three have strong international components.
Middle sectors were the Health Care, Financials, Industrials, and Materials sectors.
At the back, consumer sectors stood out.
Consumer Staples fell to Unattractive and Consumer Discretionary fell all the way to Very Unattractive. Communication Services rounded out that low rung.
(1) Info Tech stays Very Attractive. Semis and Software Services noted Very Attractive!
Image: Bigstock
The Magnificent Seven: Zacks NOV Market Strategy
The following is an excerpt from Zacks Chief Strategist John Blank’s full Nov Market Strategy report To access the full PDF, click here.
2023 share returns have been safely found — but only in the biggest tech stocks.
The historical expected S&P500 annual return (using data from 1930 to 2021)?
This is +7.9%.
I. The Very Big, and Strong, Info Tech Stocks
A Zacks Research System chart (next) shows you something important re tech, too.
Multiple trillions of central bank liquidity and the trillion-dollar market caps of these mega-cap tech stocks keep pushing the major U.S. benchmarks higher.
These seven tech mega-caps, Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) , NVIDIA (NVDA - Free Report) , Meta Platforms (META - Free Report) and Telsa (TSLA - Free Report) lead.
But they have very high forward 12M P/E multiples.
A strong mega-cap P/E valuation bias is incorporated in the S&P500 and the Nasdaq.
The market capitalizations (led by AAPL at $2.6T & MSFT at $2.4T) are charted below.
Image Source: Zacks Investment Research
Over the last 10 full years? Four mega-cap tech stocks drove the U.S. large-cap indexes (AAPL, MSFT, GOOGL and AMZN).
Tesla and NVIDIA? They are relatively newer entrants to this class of mega-cap stocks.
2023? Meta was surging, until recently.
In sum, this so-called Magnificent Seven (Amazon, Apple, Google (Alphabet), Meta, Microsoft, Nvidia and Tesla) make up more than a quarter of the S&P500, and their stellar performance has driven the U.S. stock market's outperformance, so far this year.
Image Source: Zacks Investment Research
For the bulls, the COVID pandemic accelerated online shopping and remote working. These aggregate demand factors were already in place before 2020.
But 2020-era events probably moved the amount of Internet-driven activity ahead by 5 years.
For the bears, be aware. The Biden administration and the E.U. have announced anti-competition litigation. Furthermore, the ‘return-to-life’ experience focus has relatively slowed Internet and screen-based spending.
II. Zacks November Sector/Industry/Company Telescope
With Q3 earnings reports came abrupt change to Zacks Sector/Industry rankings.
Top sectors were Info Tech, Energy, and Utilities, and Info Tech. Surprisingly, two of three have strong international components.
Middle sectors were the Health Care, Financials, Industrials, and Materials sectors.
At the back, consumer sectors stood out.
Consumer Staples fell to Unattractive and Consumer Discretionary fell all the way to Very Unattractive. Communication Services rounded out that low rung.
(1) Info Tech stays Very Attractive. Semis and Software Services noted Very Attractive!
Zacks #1 Rank (STRONG BUY): Amazon (AMZN - Free Report)
(2) Energy rises to Very Attractive from Attractive. Oil & Gas Integrated, Coal, Oil Misc. and Energy-Alternates look best.
Zacks #1 Rank (STRONG BUY): Murphy USA (MUSA - Free Report)
(3) Utilities stay Very Attractive. Utilities-Water Supply and Gas Dist. are best again.
Zacks #1 Rank (STRONG BUY): Veolia Environment (VEOEY - Free Report)
(4) Health Care stayed Market Weight. Medical Care leads.
(5) Financials rose to Market Weight from Unattractive. Banks & Thrifts, Banks-Major, Finance, and Real Estate are together at Market Weight now.
(6) Industrials fell to Unattractive from a high Very Attractive rating. Only Business Products stayed strong again.
(7) Materials rose to Unattractive from Very Unattractive. Building Products was a strong outlier again.
(8) Communications Services falls to Unattractive from Market Weight.
(9) Consumer Staples fell to Unattractive from Attractive. Food/Drug Retail looks best.
(10) Consumer Discretionary fell to Very Unattractive from Market Weight. HOWEVER, Non-food Retail and Leisure Services stayed strong.
Conclusion
Bulls, keep it simple.
Study up on the big and strong stocks leading in Info Tech, Energy, and Utilities sectors.
The top 10 stocks weight in the market cap S&P500: 32.4%
Earnings contribution of the top 10 stocks, in the S&500 ETF: 20.5%
Enjoy the rest of my Zacks NOV 2023 market strategy report.
Regards,
John Blank
Zacks Chief Equity Strategist and Economist