Good morning, investors. All three major US stock indexes are coming off a losing week, and investors will be looking to a slate of earnings and spending data to help turn things around in the shortened trading week.
Just over six weeks into the new year and Big Tech can’t seem to keep up with the rest of the market.
Not so magnificent
The Magnificent 7 have lost their halo since the calendar turned.
After three years of carrying the entire stock market, the world’s largest technology companies are now dragging it lower while the S&P 493 stage a rebound of their own.
The divergence is as clear as it is painful for bulls of the AI trade.
So far year-to-date:
S&P 493 is up 2.68%
Magnificent 7 as a group are down 6.43%
Individually, too, not one Magnificent 7 name — Meta, Google, Nvidia, Amazon, Microsoft, Apple, Tesla — have seen a positive return this year so far.
The “rest of market” trade has outperformed to start the year, with investors increasingly looking for AI’s near-term monetization rather than long-term potential.
The equal-weight S&P 500 tells a similar story of rotation.
While the traditional market-cap weighted index is flat year-to-date, the equal-weight version is up more than 5%.
That divergence suggests a few things:
The average S&P 500 stock is doing well
Big Tech is creating weakness, rather than masking it
Capital isn’t leaving the market, just rotating from tech to other sectors
Taken together, the outperformance of both the S&P 493 and the equal-weight S&P 500 confirms that the bull market is still strengthening, despite weaker players at the top.
For the first time in years, gains are becoming less narrowly concentrated in a handful of trillion-dollar companies.
Historically, that is a sign of improving market health, breadth and participation.
To be sure, this doesn’t mean that the era of mega-cap dominance is ending. Nor does it make sense to bet on any “popping” of an AI bubble.
But the bull market does in fact seem robust enough to find plenty of magnificence in the rest of the S&P 493.
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Market snapshot
Elsewhere
🇨🇳 China is battling the US for AI dominance. Some analysts believe that the pace of technological improvement in China currently outpaces that of the US, with its own homegrown chips beating leading names in the West. (CNBC)
🪙 Stablecoin demand could be cooling off. Bitcoin’s recent price drop has chilled sentiment across the cryptoverse. And while stablecoins aren’t designed for speculation, the total market value of the seven largest US-dollar stablecoins has fallen 2% from December. (WSJ)
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Interview
I sat down with Todd Sohn, chief ETF strategist of Strategas Asset Management, to unpack where the bull market is turning next, the hidden concentration risk in everyone's portfolio, the two most undervalued sectors and the boom in leverage products and gambling-like investing.
Tune in on YouTube, Spotify, or Apple Podcasts.
Rapid-fire
This mega-cap has lagged the AI trade but a leading investor expects it to dominate the mass-adoption phase (Best Ideas Club)
10 takeaways from Bitcoin Investor Week in New York (Pomp Letter)
Beef prices are soaring as cattle herds shrink and farmers get pinched (Bloomberg)
ByteDance is adding safeguards to its new AI video generator after Hollywood threatened legal action for alleged copyright violations (CNBC)
AI fears have hit software stocks, financial services and trucking names (Opening Bell Daily)
Anthropic’s AI ads for the Super Bowl making fun of OpenAI led to an 11% user boost (CNBC)
Tariffs, AI shocks, Fed updates and geopolitics have kept investors guessing all year (WSJ)
On this day
🗓 February 17, 2009: President Obama signed the America Recovery and Reinvestment Act, a $787 billion stimulus package aimed at stabilizing the economy in the aftermath of the Great Financial Crisis.
Last thing
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