After a roaring rally throughout most of 2024, the U.S. stock market has faced challenges in December, prompting investors to retreat to familiar territory: megacap technology stocks.
The so-called “BATMMAAN” stocks—Broadcom, Apple, Tesla, Microsoft, Meta, Amazon, Alphabet, and Nvidia—have taken center stage. Broadcom’s recent entry into the $1 trillion market cap club reinforced the dominance of this elite group, which has seen a combined market cap increase of $1.9 trillion since November’s election, accounting for over 85% of the S&P 500’s total gains in that period.
Sector Struggles and Concentration Risks
While December began with broad-based gains, the momentum has fizzled outside the megacap tech sector. Only three of the S&P 500’s 11 sectors—information technology, consumer discretionary, and communication services—are on track to finish the month in positive territory, driven largely by BATMMAAN stocks. As a result, the S&P 500 is headed for a monthly loss, even as the tech-heavy Nasdaq Composite posted a 2.5% gain, highlighting the market’s growing dependence on a few heavyweights.
This trend has led to unprecedented concentration within the S&P 500. Five stocks—Apple, Nvidia, Microsoft, Alphabet, and Amazon—now represent a combined index weight unseen since the early 1990s. According to analysts, such concentration poses diversification risks, as the index’s performance hinges disproportionately on a handful of companies.
The AI Effect and Valuation Concerns
Much of the enthusiasm surrounding these stocks stems from their investments in artificial intelligence. Nvidia and Broadcom, for example, have reported explosive growth tied to AI infrastructure. However, other BATMMAAN stocks, like Apple and Tesla, have shown more modest growth, raising concerns about stretched valuations. Analysts warn that if these companies fail to deliver on high expectations or if enthusiasm for AI wanes, their lofty valuations could come under pressure.
Broader Market Trends
Despite the December pullback, the broader market in 2024 has been healthier than in 2023. Ten of the S&P 500’s 11 sectors are set to finish the year higher, with small- and midcap stocks making gains, even if they lag behind their large-cap peers. The S&P 500 is on the cusp of achieving a rare milestone: consecutive annual total returns above 25% for the first time since 1998.
Looking ahead to 2025, Wall Street predicts continued gains, albeit at a slower pace. However, rising Treasury yields, stagnant earnings growth outside the megacap space, and questions about AI’s near-term profitability could temper optimism. The 10-year Treasury yield has climbed by 100 basis points since September, raising borrowing costs and potentially weighing on broader market participation.
What’s Next?
Investors may begin to demand concrete results from AI investments or turn their focus to value stocks with more attractive valuations. Even if the AI-driven rally stumbles, analysts expect supportive policies, including an accommodative Federal Reserve and planned tax cuts, to underpin market strength in 2025.
As the year winds down, light economic data—like jobless claims and the ISM manufacturing index—will offer limited new insights. Despite some turbulence, the major indexes managed gains last week, setting the stage for an intriguing start to the new year.
