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Wells Fargo argued on Tuesday that the separation between mega cap stocks, which have led the stock rally so far in 2023, and the rest of the stock market will likely begin to narrow soon, with macro pressures raising the chances for a possible “catching down” for Wall Street’s marquee names.
“We expect recent outperformance of larger cap names to eventually correct, as we’ve seen through history, either by the top names ‘catching down’ to the average stock or the average stock catching up to the top names,” Wells Fargo stated in an investor note. “For the latter scenario, we expect the macro environment would need to improve. With our forecast of recession on the horizon, we believe the average stock should likely continue to struggle.”
According to Wells Fargo as of September 27th 2023, 7 mega cap tech names have been driving the majority of returns seen in the market. These stocks have popped 80.1% on average, compared to the typical stock measured by the S&P 500 equal weight index, which is essentially flat.
Moreover, through the same September 27th date, Communication Services (XLC) have advanced 38.8%, while Information Technology (XLK) has climbed 32.3%, and the Consumer Discretionary (XLY) sector is up 23.8% compared to the 11.3% that the S&P 500 Index (SP500) and its benchmark tracking ETFs (NYSEARCA:SPY) (NYSEARCA:VOO) (NYSEARCA:IVV) are up by.
Regarding the ‘Magnificent 7’ names, see how they have fared so far in 2023:
