S&P 500 closed out the week with a paltry loss, wrapping up what has been a spectacular week for the tech sector.
The Dow Jones Industrial Average finished 274 points, or 0.6%, lower. The S&P 500 fell 0.1%, snapping its four-day winning streak. The tech-heavy Nasdaq Composite marked a new record, finishing up 0.4%, and marking a five-day winning streak—its longest since mid-July.
Friday’s market gains weren’t evenly spread out: Only about 25% stocks in the S&P 500 ended the day higher, indicating poor market breadth.
Perhaps the best evidence of this was in the decline seen in the S&P Equal Weight Index, which unlike the regular S&P 500 allocates a fixed weight to each of its components, and fell 0.7%.
The information technology sector was among the few segments of the market that ended higher today.
The group of Magnificent 7 stocks—which includes Google parent Alphabet, Amazon, Apple, Facebook parent Meta Platforms, Microsoft, Nvidia, and Tesla—closed at a combined market capitalization of more than $20 trillion for the first time on record, a startling figure that is greater than the GDP of every country except for the U.S.
A significant issue with such large companies is the risk of concentration. For better or worse, the S&P 500’s relentless run hinges on the success of just a handful of tech giants, a critical vulnerability.
“Taken together, the massive weight and extraordinary business performance of these [Mag 7] giants skew the index’s overall characteristics to the point that ‘the stock market’ looks much different than ‘the average stock,'” wrote Leuthold Group’s Director of Research & Equities Scott Opsal in a note last week.
The equal-weighted S&P 500 has gained just over 55% since the bull market began in October 2022 through August of this year, which is below the historical average bull market return of 64% for periods that didn’t follow a recession, the firm added.
Next week, investors will parse the policymaking arm of the Federal Reserve’s interest rate decision, which will come out Wednesday and be followed by Fed Chair Jerome Powell’s press conference. Traders feel assured that the central bank will start to lower interest rates.
In the bond market, the yield on the 10-year Treasury note declined 0.027 percentage point to 4.058% this week. The 10-year yield typically barely budges when Fed cuts its policy rates and the economy isn’t in a recession, according to research from DataTrek’s co-founder Nicholas Colas, who looked at nine periods of Fed rate cuts since 1989.