How Long Can Mega-Cap Stocks Keep Fueling S&P 500 Rally?

investing.com:

The market is following historical trends, which are often easy to overlook.

Major stock indexes reached their peak in July, and many individual stocks have hit new 52-week highs in recent months. However, this is actually quite typical for this time of year. In fact, if the markets were behaving differently, that would be considered unusual.

One aspect that might seem unusual is the dominance of large-cap stocks in 2023. Other good companies may have better valuations and fundamentals but continue to lag behind.

Here's a comparison of the performance between the S&P 500's market capitalization-weighted index and the equal-weight index:

It is apparent that the mega-cap stocks played a pivotal role in driving the rally.

Now, many have different explanations for the performance gap between the top 10 stocks and the other 490 in the S&P 500 index.

To illustrate this, take a look at the cash flows into ETFs, which have been disproportionately directed toward larger capitalization stocks. Out of approximately 1,500 ETFs, the top 10 stocks in the S&P 500 are present in more than 25% of all ETFs issued.

Here's Investing Pro's Fair Value estimated upside/downside for the top 10 stocks in the S&P 500 year-to-date:

Meanwhile, Goldman Sachs has once again lowered the 12-month recession probability to 15%, down from 35% in March.

Source: Bloomberg, Goldman Sachs

The chart also shows that the Bloomberg Consensus still remains relatively high, nearing 60%. This could be influenced by factors such as the seasonality of the VIX.

Source: Topdown Charts, Refinitiv

The coming months may naturally see the VIX move higher as uncertainty grows. However, one thing remains nearly certain: over the past decade, the tech sector has