AI and Big Tech no longer drive the 2023 stock surge

The rise of artificial intelligence fueled a tremendous increase in “Magnificent Seven” Big Tech stocks, including Apple, Microsoft, and Nvidia, over most of 2023.

However, there are signs the rally is spreading.

June was the S&P 500’s most incredible month since October, with a 6.5% rise that followed the FANG+ group of New York Stock Exchange-listed Big Tech companies.

Analysts now use “breadth” to characterise a rally that raises several equities rather than a few. Market breadth increased to 65% this week, the highest since mid-February.

“We’ve moved on a little bit [from the Magnificent Seven],” Minerva Analysis founder Kathleen Brooks told Insider in a recent interview.

“I know they’re still essential for markets, but we’re seeing a broadening in performance, with several names from different sectors hitting 52-week highs,” she said.

Moving Markets

General Electric, PulteGroup, and three cruise lines join Nvidia, Meta Platforms, and Tesla on the year-to-date list of the ten best-performing stocks, supporting Brooks’ claim that the 2023 rally is no longer just about tech.

According to UBS, Big Tech’s considerable gains in the year’s first half may have prompted investors to sell their shares for a profit before moving into other industries.

“Investor enthusiasm over the potential of artificial intelligence to boost the technology sector also supported year-to-date equity gains,” Swiss bank CIO Mark Haefele said in a recent research report.

“But, there were signs in June that mega-cap AI equities are consolidating and that the rally is broadening to laggards,” he noted.

Inflation is cooling towards the Federal Reserve’s 2% objective, and unemployment held steady at under 4% in May despite the central bank’s aggressive interest-rate hikes, helping non-tech equities.

The broadening beyond tech seems optimistic for investors, but Wall Street is warning of a recession, so these gains may not persist.

“It’s a sign of a healthy market and a return to passive investing,” Brooks said. “Far from being at risk of collapsing, stocks are looking healthier than they did when the AI rally kicked off.”

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