Gains experienced by US equities in 2023 were driven by investors switching to AI technology, experts have said.
Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla, often referred to as the 'Magnificent Seven', were all popular this year and between them contributed considerably to US equities' total returns.
They all focus on longer term technology growth trends, including AI, cloud computing and software development.
Alex Stanić, head of global equities at Artemis and lead manager of the Artemis Global Select fund, said 2023 would be remembered as the year when “two letters joined the lexicon of common parlance for investors: AI”.
He said: “In the US we witnessed something extraordinary. I call it 'divergence', but if this was a film the title would probably be The Magnificent Seven Ride Again.
“Between them they have driven over 80 per cent of global returns in 2023 and 117 per cent of the S&P 500’s total returns.
“So, in aggregate, the rest of the US market fell – yet the S&P 500 is up 19 per cent year to date."
He said this showed how big these companies were, "between them they make up over 28 per cent of the S&P 500 index".
Stanić called Nvidia the “stock of the year” after it rose 233 per cent since the start of December, which he said was due to its products being “critical enablers of AI work”.
The fund manager added: “It has no meaningful competition so its chips are highly sought after.
“Whatever your view, even after that staggering share price rise, Nvidia still looks reasonable on a price-to-earnings basis because sales and earnings have shot up so much.”
Guillaume Paillat, multi-asset portfolio manager at Aviva Investors, agreed positive US equity performance was influenced heavily by AI.
He said: “The catalyst was the popularisation of generative artificial intelligence technology with the release of Chat-GPT4.
“This saw chipmaker Nvidia join the exclusive $1tn (£0.8tn) market cap club. [Magnificent Seven] accounted for almost 30 per cent of the S&P index by the end of the year."
Henk-Jan Rikkerink, global head of solutions and multi asset at Fidelity International, thinks 2023 will be remembered for this surge in popularity of US technology stocks, which defied rising interest rates.
He said: “2023 will be remembered for the continued dominance of the big tech stocks in the US, this time driven by excitement over the potential of artificial intelligence.
“Remember that when the rate hiking cycle began in earnest, many investors assumed that growth stocks, including many big tech names, would struggle as rates rose, because the promise of earnings in the future becomes less valuable as interest rates rise.
“However, in 2023 big tech shrugged off higher rates to once again be the main driver of performance in US equity indices.”
James Budden, director of marketing and distribution at Baillie Gifford, added: “2022 was utterly forgettable and 2023 won’t be fondly remembered by many investors. Not that it has proved to be disastrous with most equity markets returning at least positive numbers [by the end of November].
“Once again the US has led the way propelled by the Magnificent Seven - a group of companies whose respective spheres of business actually have little in common.
“Yet they do serve as another example of how markets are driven by a small group of big winners and not the rising tide.”
On December 11 the S&P 500 managed, for the first time in 2023, to close higher despite a decline for all of the 'Magnificent Seven' stocks.
It was only the seventh time in the past five years this had happened, according to Financial Times analysis.
It came after the index added 0.4 per cent to close at its highest since March 2022, with technology being the only sector to decline.
tara.o'connor@ft.com
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