S&P 500 Relys on AI Giants to Stay Afloat
Key Summary
The S&P 500 is close to its record high, but a significant portion of its stocks are struggling, with 41% trading 30% below their highs. Real estate, materials, and utilities are among the hardest hit, while energy and healthcare have fared better. AI stocks, however, are holding the index up, but a faltering in AI spending could disrupt earnings and erode the broad base of the market.
Sector PerformanceThe S&P 500 is within 0.2% of its record high, yet a significant portion of its stocks are struggling. Real estate, materials, and utilities are among the hardest hit, with 97%, 96%, and 94% of their stocks trading at least 10% below their all-time highs, respectively. In contrast, energy and healthcare have fared better, with 62% and 70% of their stocks trading at least 10% below their all-time highs.
AI Stocks Driving the MarketNvidia, Apple, and Microsoft make up roughly a fifth of the S&P 500, and are credited with holding the index up. According to Kevin Gordon, Schwab's head of macro research and strategy, AI stocks are the key to the market's resilience.
Earnings RiskA single mega-cap capex miss, a shortfall in AI spending, or pared-back budgets could disrupt earnings and erode the broad base of the market. With 17% of members already down more than 50%, the index may lack a broad base if AI spending falters.
Third-Quarter ReportsThe third-quarter reports from the largest AI spenders may show whether the base of the market holds. Goldman Sachs' ex-AI index, which excludes stocks classified as AI enablers, gained 6.7% in the six months to October 6, against 18.3% for the S&P 500.