July S&P 500 returns show that Big Tech has continued to wither from its dominance in the first quarter. And the new leaders may not be who you'd expect.
Nicholas Colas, co-founder of DataTrek Research, says that of the S&P 500's gain of 1.9% in the first three weeks of July, 94% of it was produced by stocks outside of Big Tech.
The S&P 500's first-quarter 7% gain came mainly from the Big-Tech leaders. Second-quarter S&P 500 performance showed Big-Tech's contribution dropping to 73% of total gains. So far this quarter — in a dramatic shift — only 6% of S&P 500 gains came from leading tech stocks.
The best sectors shifted from highflying tech to the more stalwart financial, utilities, health care and energy sectors.
The S&P Financial sector dominated with a 4.6% increase in July, accounting for nearly one-third of the S&P 500's gain this month through Friday.
Utilities also rallied 4.6%, while energy stocks gained 3.9% and health care rose 2.6%.
"The rest of the U.S. equity market is finally catching up, which is great, but that means Q3 gains may not be as robust as Q2 unless Big Tech has another leg higher," Colas wrote. "We continue to believe large cap Financials have the best opportunity for further near-term gains."
S&P Companies Beating Profit Views
According to FactSet, about 18% of S&P 500 companies have reported Q2 earnings so far, with 75% exceeding analysts' expectations, which is about average. In aggregate, they are beating the consensus estimate by 6.4%.
In contrast only 61% beat their revenue estimates. This trails the one-, five- and 10-year averages compiled by FactSet.
In the last 90 days, analysts increased their average 2023 Big Tech earnings estimates by 6.3%, and a modest 3.2% for 2024. Both numbers exclude Nvidia's high estimates that would skew results to the upside.
Analysts raised Nvidia 2023 EPS estimates by nearly 75%, and 86% for 2024, over the past 90 days. Analysts also upped Meta Platforms' 2023 earnings estimate by nearly 19% and Amazon.com's by nearly 13%.
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