The recent rebound in U.S. equities has been driven largely by a small cluster of technology giants, and strategists at Wolfe Research say there are clear reasons to expect that pattern to persist.
Wolfe's team, which includes strategist Chris Senyek, notes that roughly 10 stocks - most tied to semiconductors and AI - were responsible for about 70% of the S&P 500's roughly 17.9% return between March 30 and April 30. Those contributions were led by Alphabet, which accounted for a 4.2 percentage-point share of that gain, followed by Nvidia at 1.6 points. Amazon and Broadcom each contributed 1.2 percentage points, and Intel, Microsoft, Apple, AMD and Micron also helped drive the move.
Despite expectations in some market corners that strength would broaden beyond a few names, Wolfe points out that the ratio of the market-cap weighted S&P 500 to its equal-weighted counterpart has nearly reverted to its level at the start of the year. In other words, the benefits of the rally remain skewed toward the largest market-capitalization companies.
The strategists lay out three factors that they believe support continued leadership by mega-cap technology stocks.
- AI as the dominant secular theme - Wolfe characterizes AI as "the most dominant market theme," arguing that companies tied to that trend offer secular growth at a time when broader economic momentum could slow later in the year.
- Foreign capital reallocation - Slower growth in major non-U.S. economies, in Wolfe's view, combined with persistently high energy prices, is helping push foreign investors to reallocate capital back into U.S. markets.
- Rising stagflation probability - The strategists say investors are beginning to incorporate a small but increasing probability of a stagflationary environment into their positioning, which may favor large, profitable technology names.
Wolfe also points to corporate results as reinforcing the trade. Solid first-quarter earnings from the largest technology firms have added momentum to the AI-driven narrative. "With mega cap tech earnings coming in solid, adding more fuel to the AI theme, we believe that investors are likely to continue to chase the perceived tech winners in semis and memory, among others," the strategists wrote.
Broader market context also supports the view that large tech led the recent advance. The U.S. equity complex had a strong April, with the S&P 500 posting its best monthly gain in several years. Wolfe attributes that performance to resilient corporate earnings and easing oil prices, even as geopolitical tensions related to the Iran conflict weighed on sentiment at times during the month.
In sum, Wolfe Research argues the confluence of a dominant AI narrative, flows back into U.S. equities due to weaker foreign growth and energy pressures, along with a growing perception of stagflation risk, combine to make continued leadership by mega-cap tech, semiconductors and memory stocks a likely near-term outcome.
Data points cited:
- S&P 500 total return of approximately 17.9% between March 30 and April 30.
- About 70% of that return attributable to 10 large technology names.
- Alphabet contributed 4.2 percentage points; Nvidia 1.6 points; Amazon and Broadcom 1.2 points each.