RBC notes S&P 500 top ten underperformance dragging index

RBC strategist Lori Calvasina reports that the ten largest companies in the S&P 500 are underperforming the rest of the market, a trend that is holding back the broader index. This relative weakness in the benchmark's most heavily weighted names is weighing on overall stock market performance.

The group of ten lagging stocks includes Apple (AAPL), Nvidia (NVDA), Amazon (AMZN), Broadcom (AVGO), both classes of Alphabet (GOOGL) and (GOOG) stock, Micron (MU), Meta (META), Microsoft (MSFT), and Tesla (TSLA). Calvasina noted that she remains on the sidelines with technology stocks, a position she took after downgrading the sector to a Market Weight rating earlier this month. She attributed the current market stagnation to mounting investor skepticism regarding the timeline for artificial intelligence return on investment, which has triggered severe rotation and pullbacks in megacap tech stocks.

Specific performance data illustrates the extent of the decline. Nvidia has retreated roughly 13% from its peak valuation, while Tesla shares have slipped 26% from their top marks. Amazon, Alphabet, Google, and SpaceX are also facing potential double-digit drops from their respective highs. Recent earnings reports from Meta and SpaceX exacerbated investor concerns, as both companies reported negative free cash flow and outlined aggressive spending plans for AI infrastructure.

HSBC strategist Max Kettner described the current environment as one where institutional investors have remained in a "wait-and-see" mode. This hesitation is driven by rising oil prices and portfolio de-risking ahead of November's midterm elections, rather than a pursuit of stocks trading near all-time highs. Kettner stated that his firm has been maximally overweight stocks and maximally underweight sovereign bonds since mid-March but can no longer maintain that level of conviction due to constant narrative shifts.

Kettner identified potential future risks, including worries about AI regulation in the event of a "Blue Wave" election outcome and renewed geopolitical concerns around the Middle East. Based on these factors, he said he is moving to the sidelines on stocks near term. The combination of corporate earnings concerns and macroeconomic uncertainty continues to define the market landscape for these high-profile technology holdings.