2023’s rally in US equities is looking a little thin

The MSCI USA Index has not made much further headway on net in April so far. But it has at least held on to its strong gains from earlier in 2023, returning about 8% YTD. Part of that strength presumably reflects the global economy proving more resilient than either we or the consensus had expected. A dip in real Treasury yields has helped too. However, viewed a certain way, this year’s rally in US equities looks more fragile. We calculate that nearly all of the YTD returns from the MSCI USA Index reflect big rallies in its seven largest growth stocks, despite those companies having a weight of only around 20% at the end of last year. The surge in those stocks seems to have at least as much to do with sector- and industry- specific trends, such as recent breakthroughs in AI, as a better outlook for the global economy in the round.