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2023’s Tech-Driven Rally: A Narrow Path to Success


As we reflect on the performance of the S&P 500, one thing becomes clear: a select few days have played a pivotal role in shaping the market’s trajectory. While this year has been marked by notable differences compared to the previous year, one constant remains—the reliance on a small group of stocks to drive gains.

Notably, the progress of Big Tech stocks has been the primary driving force behind the market’s upward momentum in 2023. Although we are now seeing a spill-over effect benefiting other stocks, concerns linger regarding the sustainability of this momentum. It is crucial to recognize that the market’s success hinges on the performance of a narrow group of winners.

Among these winners are seven tech giants: Tesla (TSLA), Nvidia (NVDA), Meta Platforms (META), Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), and (AMZN). Their contributions have been significant in propelling the market forward.

Remarkably, the scope of this year’s rally can be narrowed down even further to just a fraction of trading days. Nicholas Colas, co-founder of DataTrek Research, reveals that out of the 137 trading days in 2023, only 10 days stand out for their double-digit gains—a key driver of the S&P 500’s impressive performance. In fact, these 10 best trading days have accounted for a remarkable 96% of the year-to-date gains, amounting to a total price return of 17.4%.

When we expand our view to encompass all 137 trading days, an intriguing pattern emerges: there have been 74 up days for the S&P 500 and 63 down days. The margin between the two is quite narrow, with just an additional 11 up days. These 11 best days alone have contributed to a price return of 18.8%, surpassing the total gains seen this year.

It is important to glean insights from these statistics and consider the implications they hold for the market going forward. While the rally has been robust, its reliance on a handful of winners and a select number of trading days suggests a degree of fragility. As we proceed, it will be crucial to monitor these factors and navigate the market with a discerning eye.

The Bull Market: A Closer Look

Last year’s bear-market losses were largely concentrated in just five trading days, which mirrored the overall concerns of the market regarding rising prices, the Federal Reserve’s attempts to rein them in, and the uncertainty surrounding near-term corporate profits.

With this perspective in mind, it becomes clear that investors only need a slightly higher number of up days compared to down days in the remaining 113 trading days to sustain the current rally, as highlighted by Colas.

Looking back, the ten major bullish days that have occurred were driven by three key factors: the resilience of the U.S. labor market despite cooling inflation, stronger-than-anticipated earnings from Big Tech companies, and the collaborative efforts of both the public and private sectors to resolve the March banking crisis.

However, it is worth noting that the market may have already factored in these positive signals to a large extent. This has led some experts to argue that for the upward momentum to continue, new catalysts are needed. These could include better-than-expected earnings or increased enthusiasm surrounding artificial intelligence.

Colas shares this sentiment, asserting that in order for the S&P 500 to experience more standout days in the second half of the year, it is crucial for Big Tech companies to consistently deliver impressive results. Not only do they make up nearly 40% of the index, but their success could also reinvigorate optimism in the field of AI. Additionally, any indications from the Federal Reserve that suggest contentment with the pace of declining inflation would likely be well-received by investors.

However, despite the need for these positive factors, Colas concludes that those anticipating a downturn may be overlooking the current market conditions. The slightly higher number of up days compared to down days seen so far this year fits the classic definition of a bull market or at least a bullish market.

And so far, this has proven to be sufficient.

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