Goldman Sachs pointed out,$S&P 500 Index (.SPX.US)$Never been so heavy-headed and fearless.

The so-called “Big Seven” technology stocks, that is$Apple (AAPL.US)$,$Alphabet-A (GOOGL.US)$,$Microsoft (MSFT.US)$,$Amazon (AMZN.US)$,$Meta Platforms (META.US)$,$Tesla (TSLA.US)$with$NVIDIA (NVDA.US)$It already accounts for 29% of the total market value of the S&P 500 index.

According to the “2024 US Stock Market Outlook” released by Goldman Sachs, this is the first time that the market value of the S&P 500 index has been accounted for such a large proportion by seven stocks.

This point of view helps explain the charts produced by Goldman Sachs. The chart shows that the “Big Seven” have risen 71% this year, while the other 493 stocks have only risen 6%, which has led to the S&P 500 index rising by about 19% this year.

The Goldman Sachs stock research team, led by David Kostin, the chief US stock strategist, described the outstanding performance of the “Big Seven” as a “defining characteristic of the stock market in 2023.”

Two other charts in the Goldman Sachs outlook report show that the “Big Seven” outperformed the other 493 stocks on key indicators that usually affect stock market performance.

From 2013 to 2019, the “Big Seven” had a compound annual growth rate of 15%, while the compound annual growth rate of other stocks was 2%. This gap has narrowed to 18% and 15%, respectively, in the past two years, but Goldman Sachs expects this gap to widen again in the next few years.

Goldman Sachs expects the compound annual growth rate of the “Big Seven” to reach 11% from 2023 to 2025, while the compound annual growth rate of the other constituent stocks of the S&P 500 index is 3%.

The net profit margin of the “Big Seven” also performed well, with a profit margin of 19% higher than that of other companies of 9.8%. Not to mention, these seven companies are expected to see long-term earnings per share growth of 17%, while the rest of the index have this figure of 9%. Kostin wrote:

“From a fundamental point of view, the profit trajectory of recent years explains the performance of the Big Seven compared to other companies in the market. While they performed well this year, the rebound in profit margins and earnings surpassed the weakness in other sectors of the market. The market generally expects that the Big Seven will continue to grow faster than other constituent stocks of the index.”

Goldman Sachs believes that the “Big Seven” may continue to rise in the future, but given their rise last year, this does not mean that buying the “Big Seven” is an ideal deal for 2024. Kostin wrote:

“Compared with the other 493 stocks, the expected sales growth of these 7 stocks is faster, profit margins are higher, reinvestment ratios are higher, and balance sheets are stronger. After considering expected growth, their relative valuations are in line with the recent average. However, given the high expectations, the risk-reward profile for this type of transaction is not particularly attractive.”

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