Nasdaq megacaps such as Tesla, Meta Platforms and Nvidia have dominated the stock market in 2023 while most other stocks, especially small caps, have made little progress.
The Nasdaq 100 has rallied 35% in 2023. It's dominated by Tesla stock, Meta, Nvidia and the other Magnificent Seven stocks: Google parent Alphabet, Microsoft, Apple and Amazon.com. Meanwhile, the small-cap Russell 2000 is down 1.8%.
On Wednesday, the Nasdaq 100 jumped 1.45%, led by Tesla, Meta and Google stock. The Russell 2000 was flat rebounding from near 2023 lows.
But the big-cap tech dominance vs. the small caps goes beyond 2023. In fact, the Nasdaq 100 is now outperforming the Russell 2000 by a wider margin than at the dot-com peak in March 2000.
Historic Nasdaq 100 Dominance Vs. Small Caps
The chart shows the ratio of the Nasdaq 100 to the Russell 2000. After the long dot-com bust, small caps did relatively well vs. tech giants, but the big-cap dominance returned in 2006 and gradually picked up momentum. After a reversal in late 2020, tech titans have raced higher in 2023.
Many of the big trends of the 21st century: smartphones, social networks, e-commerce, cloud computing and now artificial intelligence are dominated by a handful of firms. Network effects and the massive costs of setting up cloud-computing networks or generative AI cater to a bigger-is-better mentality.
Magnificent 7
The chart provided may actually downplay the magnitude of this shift to big techs. While the Nasdaq 100 is up 35% in 2023, Nvidia stock has tripled. Meta stock has vaulted over 150% while Tesla stock has more than doubled. Google stock and Amazon are up more than 50%. Only Microsoft and Apple stock are underperforming the Nasdaq 100, barely. Both are up one-third this year.
On the flip side, one-third of Russell 2000 companies are losing money, right at all-time highs. Meanwhile, smaller banks are increasingly at a disadvantage in terms of holding onto deposits in a higher interest-rate environment.
TSLA stock and Meta Platforms are on IBD Leaderboard, with Tesla also on SwingTrader. Meta stock and Tesla are on the IBD 50
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