Step aside Magnificent Seven stocks. A dynamic duo of two stocks drives the S&P 500 this year. And some investors might wonder why they should even bother with the rest.
Microsoft and Nvidia account for nearly 60% of the S&P 500's total market value gain this year of $863 billion, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
Seeing such a top-heavy market again this year is a bit of a surprise — as only a small group of stocks contributed last year. The total returns of just seven S&P 500 giants powered 60% of the S&P 500's return in 2023, says Howard Silverblatt of S&P Dow Jones Indices.
But this year, two stocks are pulling about just that much weight. And the bench much deeper than that. "Twenty largest stocks in the index accounted for 110% of the index's upside move. The remaining 480 stocks were acting as a drag," said Bespoke Investment Group.
Off To A Top-Heavy 2023 For The S&P 500
Why the rush to just a couple of S&P 500 stocks? You can thank AI for that. Both of the giant winners this year are closely tied to the rise of AI.
Take Nvidia, the maker of high-performance chips used to power most AI models. Shares are up nearly 24% this year already, adding nearly $300 billion in market value. That single-handedly accounts for nearly 34% of the entire S&P 500's market value gain this year.
And then there's Microsoft, an early investor in ChatGPT. It's embedding AI into all its products faster than some of its rivals can catch up. Shares are up more than 7% this year adding roughly $200 billion in market value. That's roughly a quarter of the S&P 500's market value gains this year.
So how can ETF investors play this top-heavy market?
Big Index' Bias Pays Off
By simply following the crowd and owning ETFs linked to popular large-cap, market-value weighted indexes, you're essentially loading up on the winners.
"The Magnificent Seven stocks make up a hefty chunk of the assets for the S&P 500 index ETFs as well as the Nasdaq 100 ETFs," said Todd Rosenbluth, head of research for Vetta Fi. For instance, Microsoft is the No. 1 holding in the SPDR S&P 500 Trust ETF at 7.3%. Nvidia is the third-largest position at 3.6%.
But if you're looking to concentrate even more on the growth winners, there are ETFs for that, Rosenbluth points out. Large-cap growth ETFs like SPDR Portfolio S&P 500 Growth, put 13.3% in Microsoft and 6.7% in Nvidia.
"So investors have strong exposure to these strong performing stocks but with some risk control benefits," Rosenbluth said.
Doubling-Down On The Giants
And yet, some investors may want to further focus on the winners. ETFs like Vanguard Mega Cap Growth and iShares S&P 100 offer "a more concentrated approach," Rosenbluth. There's also the Roundhill Magnificent Seven ETF that "owns just the seven stocks for those that want ease of use to own those select stocks," he said.
Just be aware, though, the minute most investors give up on the rest of the 493 stocks outside of the top seven is exactly when you might see the giants lag. "It is likely that as they year progresses, other winners will emerge," Rosenbluth said. "One of the benefits of ETFs is getting exposure to lesser known, still strong companies."
S&P 500's Top Drivers This Year
Based on market value gains
| Company Name | Ticker | Market value gained ($ billions, YTD) | % of S&P 500 value gain |
|---|---|---|---|
| Nvidia | $292.0 | 33.8% | |
| Microsoft | $199.2 | 23.1% | |
| Alphabet | $105.4 | 12.2% | |
| Meta Platforms | $95.9 | 11.1% | |
| Broadcom | $63.8 | 7.4% |
