By Lewis Krauskopf
NEW YORK, July 29 (Reuters) – The S&P 500 has struggled to make further headway since its early June record peak, but that tepid performance belies churning beneath the market’s surface that could take on greater importance with this week’s megacap earnings reports.
The small number of technology and other heavyweight stocks at the heart of the AI trade that have been driving the bull market are now faltering. The “Magnificent Seven” megacap stocks exchange-traded fund has declined over 8% since the June peak, while the Philadelphia SE Semiconductor index, which soared on AI-related optimism earlier in the year, has pulled back more than 19%.
That has acted as a drag on the S&P 500, which has dipped over 2% since June 2. At the same time, though, other parts of the market have perked up. About two-thirds of the benchmark’s components have gained since the June record high, and eight of its 11 sectors are higher.
That market broadening is a tradeoff many investors can stomach, so long as the major tech-heavy indexes used as market gauges avoid deeper declines. Broader gains could usher in a more durable phase of the bull market that is less reliant on the heavyweight stocks.
“It would be incredibly hard for us to outrun a bear market in the Mag 7,” said Mark Hackett, chief market strategist for Nationwide. “But the fact that we’ve seen such an aggressive pullback in this group and the market has been flat-ish during that period, I view that as incredibly healthy.”
MAG 7 IN EARNINGS SPOTLIGHT
This tradeoff could be tested this week, when four of the Mag 7 report quarterly results: Microsoft and Meta report after the bell on Wednesday, with Apple and Amazon reporting on Thursday.
Two other Mag 7 companies, Alphabet and Tesla, kicked off results for the group last week, with both companies’ shares sliding after their respective results.
Along with Microsoft, Amazon and Meta, Google parent Alphabet is one of the so-called hyperscalers — a clutch of tech companies whose massive capital spending on AI data centers has underpinned this year’s AI rally, boosting semiconductors and other companies involved in the buildout.
Alphabet further increased its spending plans last week, but that raised concerns about whether it would reap sufficient returns on its investments.
The market can absorb a “bad day for one of the names,” Hackett said. However, he added: “I don’t think the S&P can … even remain kind of where it is if there’s a flushing of the AI story.”
