The awkward truth behind the U.S. stock market rally: Apart from the Magnificent Seven, the other 493 stocks are "deep in trouble."

```

Beneath the apparent boom of the US stock market lies an awkward structural divergence: the rise of the S&P 500 index is almost entirely dependent on the seven major tech giants, while the remaining 493 constituents are lagging far behind. However, Wall Street strategists believe that as long as the strong profit growth momentum of large tech companies continues, there is no reason to go against this trend.

On November 4, according to reports and data compiled by Bloomberg, the "Magnificent Seven" (Apple, Nvidia, Microsoft, Amazon, Tesla, Meta, Alphabet) technology companies are expected to post a third quarter earnings growth rate of 27%, about double the previous forecast, becoming the key force propping up the market. In contrast, after excluding these seven companies, the earnings growth rate of the remaining S&P 500 companies plunges from 13% to 8.8%.

At the same time, according to data from Jefferies, the S&P 500 equal-weighted index—a measure reflecting the performance of average stocks in the benchmark index—is priced at a discount of more than 25% relative to the S&P 500 Index. Yet most Wall Street strategists believe that as long as the large tech companies' profit engines keep running, there is no reason to fight this trend.

The report points out that although market concentration has sparked concerns over a potential bubble, investors' optimism about artificial intelligence technology and the continually strong earnings of tech giants have led most on Wall Street to keep betting on a handful of winners rather than wait for broader market participation.

The Magnificent Seven's Profits Prop Up the Overall Market

The robust earnings performance of the "Magnificent Seven" tech stocks is a key pillar of the current concentrated market rally. Recent earnings reports from companies such as Apple and Amazon have further cemented investor confidence in this group.

Sameer Samana, Head of Global Equities and Real Assets at Wells Fargo Investment Institute, stated:

"Given how hard it is to see what could reverse the fundamental uptrend, I can't say we are concerned about the lack of breadth behind the rally."

Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management, believes that the current landscape dominated by large tech stocks may have "rewritten the investment playbook, changed the central bank framework."

Although she recommends "maximizing diversification" in portfolios, she still favors the Magnificent Seven and AI beneficiary stocks in her US stock allocations.

Market Concentration at Dangerous Levels?

The performance gap between the S&P 500 equal-weighted index and the market capitalization-weighted index has reached a worrying extent.

According to Jefferies, this level of discount is similar to the period before the tech bubble burst in the late 1990s, when the difference between the two indices reached 30%.

Andrew Greenebaum, Senior Vice President of Equity Research Product Management at Jefferies, said:

"To be clear, we are not suggesting this is a bubble, but we are indeed puzzled at how unloved the other 493 stocks are. Market breadth remains puzzlingly narrow, with no obvious signs of ending."

Chris Verrone, Head of Market Technicals & Strategy at Strategas Asset Management, believes that comparisons with the bursting of the internet bubble are "at best premature and at worst misleading."

He pointed out that while there is a huge performance gap between the weighted and equal-weighted indices, in the late 1990s, the equal-weighted index actually declined while the main index rose—whereas currently, the equal-weighted index, though lagging, is still up about 7% this year.

According to JPMorgan's trading desk, although clients are increasingly worried about market narrowness, as long as US tech giants maintain their momentum, a major index-level drop is unlikely.

Notably, traders also face an unusual situation: the federal government shutdown has led to a lack of economic data, making it difficult to substantially change their views on the economic situation. This puts the full burden of sustaining the rally on large-cap tech stocks.

Wells Fargo's Samana said: "Unless something truly disrupts the fundamentals or the macro narrative, we think at most there will only be a normal pullback." If a pullback happens, it might "be brief and shallow, because most people are still looking for buying opportunities on dips."

Risk Disclaimer and Exemption ClauseThe market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the special investment objectives, financial circumstances, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable to their specific situations. If investing based on this, you do so at your own risk. ```