This year's stock market rally has been led by a handful of technology stocks that have become known by Wall Street as the “Magnificent Seven.”
Apple, Amazon, Alphabet, NVIDIA, Meta, Microsoft and Tesla are collectively up about 75 percent since the start of the year. Americans who have them in their 401(k) savings accounts will have gotten a big boost as a result.
The 493 other companies in the S&P 500 – an index of America's 500 largest companies – rose by about 12 percent.
Overall, the S&P 500 rose nearly 23 percent through December 18, thanks to these seven powerful tech companies. Many 401(k) accounts have at least some money invested in the benchmark index, and they will have benefited from the rally during the year.
The spectacular growth of Magnificent Seven companies is widely attributed to this year's artificial intelligence craze and more recently to increased expectations that the Federal Reserve will begin cutting interest rates next year.
Nvdia, which produces computer chips, has returned nearly 250 percent this year and is the top performer in the S&P 500
As market share grew, the Magnificent Seven represented a massive 33 percent of the S&P 500 index. The 493 other non-Magnificent Seven companies in the S&P 500 rose only about 12 percent
Technology stocks took a hit last year when the Federal Reserve began raising interest rates, but have started to recover quickly this year.
That was sparked in part by the release of OpenAI's Chat GPT, which alerted investors and the masses alike to the power of AI and the ways it will likely shape the future.
Nvdia, which produces computer chips, has returned nearly 250 percent this year and is the best performer in the S&P 500.
Investors remain confident that Nvidia will remain the dominant and leading supplier of computer chips for AI.
And Apple represented more than 8 percent of the S&P 500 as of December 18. In June, it became the first company to be valued at $3 trillion.
Concerns are growing that the index is too heavily weighted towards this small number of technology stocks.
As market share grew, the Magnificent Seven represented a massive 33 percent of the S&P 500 index.
“It's a mind-boggling number to me when I think about an index that should represent such a broad group of companies,” said Ann Miletti of Allspring Global Investments. told the Wall Street Journal.
The term Magnificent Seven was coined by Bank of America analyst Michael Hartnett, who used the term in a research note earlier this year.
He told NPR that a precursor to the Magnificent Seven is the Four Horseman, a term Wall Street used in the 1990s to describe Cisco, Dell, Intel and Microsoft, whose growth at the time was fueled by the rise of the Internet.
“You know how that ended,” he told NPR, referring to the bursting of the dot-com bubble.
Matt Orton, market strategist at Raymond James Investment Management, told the Journal he expects the Magnificent Seven's dominant era may not last into the new year.
A trader is seen working at the New York Stock Exchange on November 16
“We've transitioned to a bit of a more normalized market environment, where some of the things that haven't worked for a long time are finally starting to work again,” Orton said.
This can also be other sectors, such as industry, materials and transport.
Other analysts predict that next year's elections will play an important role in the markets. Saira Malik, chief investment officer at Nuveen, told Barron that stock prices may fall, but ultimately end on a high next year.
“Historically, the S&P 500 has risen three-quarters of the time in presidential election years — by an average of 7.5 percent,” she said. “Normally you get some volatility around the election and then a relief rally through the end of the year.”