Tech Giants Lead the Way, But What’s Next for the Market?

What this video’s about:

In this episode of The Market Share, Paul Gifford, Chief Investment Officer at 1st Source Bank, sits down with Jason Cooper, Senior Portfolio Manager, to discuss current trends in the U.S. equity market. They examine the surprisingly strong performance of the S&P 500 this year, the impact of leading tech stocks known as “The Magnificent Seven,” and how the upcoming earnings season could shift the market.

Equity Market’s Strong Run in 2024

Jason Cooper points out something rare this year: the S&P 500 has had six consecutive weeks of positive returns, with a year-to-date return of 24%. Cooper explains, “That doesn’t happen often, especially in September and October, which are usually tough months for the market.”

Historically, September and October tend to be volatile, making this year’s performance noteworthy. The last time the market was this strong in these months was back in the 1990s, and during an election year, you’d have to go all the way back to 1928 for a similar situation.

The market’s strength contrasts sharply with other global markets, as U.S. equities have outperformed globally for eight of the last ten years.

The Impact of The Magnificent Seven

A major driver of the S&P 500’s gains has been a select group of tech giants, referred to as “The Magnificent Seven.” Companies like Apple, Microsoft, and Google are responsible for 40% of the S&P 500’s return this year, reflecting just how much these big players are influencing the market. Cooper mentions, “It’s remarkable that so much of the return is concentrated in just these seven companies.”
However, with earnings season approaching, the focus will shift to how the other 493 companies in the index perform.

What to Expect During Earnings Season

In the coming weeks, investors will be keeping an especially close eye on how the rest of the market will perform. Cooper shares that many companies are reporting their Q3 earnings soon, and five of The Magnificent Seven will be among them. While these tech companies have driven much of the growth so far, there’s a growing expectation that the broader market will start to contribute more.

Cooper suggests that the tide might be turning: “We could see more balanced growth, with the other 493 companies playing a bigger role in earnings as we move into 2025.” This shift could present opportunities for diversified investors who have been waiting for a broader market rally.

How to Make the Most of This Opportunity

Both Gifford and Cooper agree that now is the perfect time for investors to revisit their portfolios. As Cooper puts it, “It’s better to have these conversations when the markets are up, rather than being reactive when things are down.”

Meeting with clients during times of market strength allows for proactive adjustments to strategies, asset allocations, and tax planning. For investors, it’s a good moment to ask: Is your portfolio set up to take advantage of today’s market while also preparing for possible changes?

Conclusion

The equity market is having an unusually strong year, thanks in large part to The Magnificent Seven. As earnings season kicks off, we may start to see broader participation from the rest of the market, offering new opportunities for investors.

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