S&P 500 Sees Best May Since 2009, Led by Major Tech Stocks

The S&P 500 achieved its most significant May performance since 2009, with a near 4% gain, marking its second-best May in the last 20 years, according to FactSet data. However, this surge was largely driven by a select few stocks, highlighting a concentrated rally where the wealthiest stocks continued to outpace others. While the S&P 500, which measures market capitalization changes for its 500 components, outperformed the equal-weighted S&P 500 for the fifth straight month in 2024, the latter saw a modest 1% rise in May. This disparity extended the year-to-date performance gap between the traditional S&P (up 10%, including dividends, since January) and its equal-weighted counterpart (up 4%).

The primary drivers of the S&P 500’s rally were six major tech stocks: Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta. These companies, the only American firms valued at over $1 trillion, collectively added $1.3 trillion in market capitalization in May, accounting for 76% of the index’s total gains. This group, part of the former “magnificent seven” before Tesla’s performance waned, has contributed 40% of the S&P 500’s gains this year. The recent inclusion of Super Micro Computer and Deckers into the S&P 500, replacing lower market cap companies like Whirlpool and Zions Bancorp, further emphasized this concentration.

This trend has increased the weighting of these tech giants in the index from 28% at the start of the year to 30%, approaching levels not seen since the Great Recession. Bank of America research highlights the growing discrepancy between the market cap-weighted S&P and its equal-weighted counterpart. The past year and the first five months of 2024 have been favorable for most long-term investors in American equities, especially those heavily invested in mega-cap tech stocks. An investment of $1,000 in each of Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta at the beginning of last year would now be worth approximately $18,500. In contrast, a $6,000 investment in the S&P 500 would be worth just below $8,400, and the same amount in the equal-weighted S&P would now be around $7,100. These figures underscore the uneven returns in the current stock market surge.

Despite the impressive gains, it’s crucial to remember the benefits of investing in exchange-traded funds (ETFs) that track broad indexes like the S&P 500. These funds offer protection against losses during downturns, unlike individual high-performing stocks. This principle was evident during the stock market’s worst year since 2008, when the S&P 500 fell 19%, the equal-weighted S&P dropped 13%, and the Dow Jones Industrial Average declined 9%. That year, the six leading tech stocks experienced even greater losses, ranging from Apple’s 26% to Meta’s 64%.

The stock market’s recovery over the past 18 months has been fueled by investors abandoning expectations of a prolonged recession and celebrating decreasing inflation rates, which are anticipated to lead to lower interest rates. Lower rates typically result in higher corporate profits due to reduced borrowing costs. Tech stocks have benefited significantly from this optimistic outlook, particularly due to the growing hype around artificial intelligence (AI). Nvidia, which produces the majority of semiconductor chips used in generative AI technology, exemplifies this trend, reporting a sevenfold increase in profits due to high demand for its products.