The Magnificent Seven may be pushing the stock market near all-time highs, but a peek inside reveals some patterns of alarming breadth. The S&P 500 soared more than 10% in April, its best month since November 2020, as strong earnings from Magnificent Seven companies once again revived investors’ risk appetite. The Round Hill Magnificent Seven ETF (MAGS) ended last month up more than 14%. Broad market indexes also hit new highs on Friday, closing at record highs. But look at the Invesco S&P 500 Equal Weight ETF (RSP). It’s up just 6% in the last month, lagging other indexes. The ETF tracks the equal-weighted S&P 500, but unlike market-cap-weighted benchmarks, all companies in the index are given the same exact allocation, giving investors a more accurate picture of the overall health of the market. “This shows how narrow this market has become once again, led by a small group with momentum,” Wolf Research’s Rob Ginsburg said over the weekend. RSP 1D Mountain RSP, 1 Day Technology was once again the best-performing sector, with the Technology Select Sector SPDR Fund (XLK) up 20% in April, Ginsburg noted. This was followed by real estate, which rose significantly by just over 8%, he said. Let’s also think about consumer discretion. The State Street Consumer Discretionary Select Sector SPDR ETF (XLY) is also up more than 8% in the last month, but Amazon, which accounts for about 30% of the sector, is doing the heavy lifting, Ginsburg wrote. By comparison, the Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RSPD) was a laggard. “At first we were united, but the past week has told us otherwise, and now we are widening,” Ginsburg wrote. “It’s clearly not worth switching your portfolio to cash, but this is another sign that things aren’t as strong as they appear on the surface.” It’s worrying that the overall market is once again relying on a handful of stocks to make strides, as the risk of a sharp sell-off increases if momentum is lost. Earlier this year, the main reason was that investors believed in the market’s resilience and the market range widened. But now it looks like MagSeven will once again be the main driver of short-term gains. The megacap tech stocks outperformed 493 other stocks by about 42%, according to a note released Monday by JPMorgan’s trading desk. According to the memo, technology leadership could mean the United States once again surpasses the rest of the world. However, there is no shortage of risks, including potential disruption from AI and increased inflation risks due to the continued closure of the Strait of Hormuz, which could have a negative impact on the economic outlook. Adding to these concerns is seasonal risk, given that May typically marks the start of the worst six months of trading for the market. But for now, investors seem willing to avoid those risks. “Like most disagreements, it doesn’t matter until it happens, and it doesn’t matter right now,” Ginsburg said.
