2021 Sees Impressive Start for U.S. Stocks, Outshining 2019 Performance with Broader Market Contributions
The new year has brought a strong start for U.S. stocks, surpassing the performance seen in 2019. While the tech giants known as the Magnificent Seven continue to lead the market rally, other sectors that have been struggling are also starting to shine. This positive momentum has investors wondering if it will spill over beyond the megacap technology names.
The S&P 500 and Dow industrials have both seen impressive gains of 6.3% and 3.2% respectively in the first two months of 2024, marking their best start to a year since 2019. The Nasdaq Composite has also surged 6.3% over the same period, its best first two months of a year since 2023.
In February, all three major benchmark indexes were on track for their best month since the end of 2023. The S&P 500 and Nasdaq were set to achieve their best February since 2015. Additionally, all 11 sectors of the large-cap index were expected to finish the month in the green. Sectors such as industrials and materials, which have been lagging behind the technology sector, outperformed it by a small margin.
This sector rotation is seen as constructive by experts, indicating a potential positive outcome for the Federal Reserve’s monetary tightening cycle. The hope is for solid or above-trend economic growth with inflation remaining at a target of 2%. Improvement in corporate earnings growth expectations has also supported the broad rally in the stock market.
However, some experts remain cautious about the sustainability of this rotation. The uncertainty surrounding inflation and potential rate cuts keeps some investors on the sidelines, waiting for more clarity and concrete proof of strong economic growth. Once these concerns are addressed, it is expected that the stock rally will broaden further, with the broader tech space catching up to the performance of the megacap technology stocks.
It’s important to note that the Magnificent Seven group of stocks is no longer dominating the market as it did in 2023. While most of the big names have reclaimed their leadership in the stock rally, three stocks in this group, Tesla, Apple Inc., and Alphabet Inc., have not made significant contributions. This differentiation among the group shows that investors are not blindly piling into these seven names and are instead considering the fundamental drivers of each stock.
Overall, the strong start to 2021 for U.S. stocks is promising, with a broader market contribution and a potential shift away from the dominance of tech giants. While uncertainties remain, such as inflation and rate cuts, there is optimism that the positive momentum will continue and benefit a wider range of sectors in the coming months.
