These Stocks Are (Still) Powering the Bull Market

The bull market keeps powering ahead, even as interest rates appear poised to remain higher for longer than investors initially expected.

The Morningstar US Market Index is up 10% so far this year, and roughly 25% over the past 12 months. So, what’s driving those gains?

For months, strategists have been waiting for a rally that’s driven by stocks across industries and sectors—not just the handful of mega-cap technology giants that have dominated for the past few years. They worry that an overly concentrated market could mean trouble for investors: If those few stocks stumble, they could take the entire market lower with them.

Earnings season offered a glimmer of hope that corporate profits have begun to broaden out beyond the tech sector, but for now, it looks like the usual suspects are still leading the charge.

Nvidia Drives Stocks Higher in 2024

Far and away the biggest contributor to the bull run has been Nvidia NVDA, the tech behemoth whose chips and software are used to power cutting-edge artificial intelligence applications.

Nvidia has risen an eye-popping 132% since the start of the year, and over that period, the firm has contributed roughly 3.5 percentage points, or a little more than one third, of the market’s 10% return. That’s despite more than a year of investor concerns about an overly concentrated rally.

Nvidia’s contribution to the market is even bigger in recent months than it was in the immediate aftermath of the explosion of investor enthusiasm for AI. Over the past 12 months (since its first blowout earnings report), Nvidia has contributed 5.2 percentage points, or roughly 18%, to the market’s 29% return since the firm’s May 24, 2023, earnings release.

‘Fab Five’ Stocks in Focus

Rounding out the top contributors to the market’s returns over the past two years are Microsoft MSFT, Amazon.com AMZN, Meta META, and Alphabet GOOGL/GOOG ―the remaining four mega-cap tech companies in a group that many strategists are calling the “Fab Five.” All have seen their shares rise on strong demand for AI and resilient earnings.

Analysts think that meteoric rise can continue, even if economic growth stalls.

“We see no signs of AI development slowing down,” says Brian Colello, technology equity strategist at Morningstar. “In good times, companies will invest because it’s the future. In bad times, companies will try to get leaner by deploying AI.”

Meanwhile, some other tech stocks have foundered. Intel INTC has been one of the largest detractors from the market’s returns since the beginning of the year. It’s responsible for a 0.19-percentage-point drag, or about 1.8%, on the market’s returns for the year to date and has fallen almost 40% over that period. Adobe ADBE is in the same boat. That stock has accounted for a 0.12-percentage-point drag, or 1.17%, on returns since January. As of May 30, it was down roughly 20% for the year.

‘Magnificent Seven’ No More: Apple and Tesla Founder

Notably absent from the top contributors are Apple AAPL and Tesla TSLA, both members of a group analysts dubbed the “Magnificent Seven,” along with the members of the “Fab Five.” Tesla in particular has struggled. In fact, the electric car maker has consistently been one of the biggest detractors to the total market index over the past two years.

Apple, on the other hand, has been hampered by investor worries about slowing growth and a lack of major artificial intelligence initiatives. The iPhone maker remains in the top five contributors to the market’s returns since stocks bottomed in the fall of 2022, but its impact has faded in recent months.

Healthcare Stocks Pull the Market Lower

Over the past two years, healthcare stocks have consistently dragged the market down.

Pfizer PFE stock has fallen almost 30% since the market bottomed in October 2022 and has been responsible for a 0.2-percentage-point, or 0.43%, drag on the market’s 46% return over the period, making it the second-largest detractor from the index after Tesla. Morningstar analysts view the company as undervalued despite the stock’s struggles in the aftermath of declining sales of covid-19-related products.

CVS Health CVS shares dragged on the index over the same period, as did shares of the drugmaker Bristol-Myers Squibb BMY. UnitedHealth Group UNH losses put a dent in the market more recently. Its shares are down roughly 7.5% for the year to date and are responsible for a 0.08-percentage-point, or 0.8%, drag on the market’s return since January.

One major exception in the category? Drugmaker Eli Lilly LLY makes the list of top contributors. It is responsible for 0.8 percentage points, or 2.9%, of the total market’s 29% gain over the past year. Eli Lilly is one of a handful of manufacturers of weight-loss drugs like Mounjaro and Zepbound, which have skyrocketed in popularity over the past few years and pushed shares of their manufacturers higher. Eli Lilly stock is up roughly 90% over the past 12 months.