Artificial intelligence (AI) has captivated the market and is a key driver of the broader market rally.it wasn't that long ago meta platform Market capitalization is below $1 trillion, Nvidia was one of the smaller “Magnificent Seven” stocks. Nvidia is now worth more than $2.2 trillion, accounting for nearly 5% of its value. S&P500!
But it would be a mistake to blame AI for the overall market rally. You might be surprised to learn that the rally is occurring across the broader market.
Here are some sectors to keep an eye on and how they can impact your investment portfolio.
Image source: Getty Images.
Beyond AI
When considering the health of a sector, the most valuable companies are a good place to start. general electric (NYSE:GE), caterpillar (New York Stock Exchange: Cat)and union pacific (New York Stock Exchange: UNP) are among the three most valuable industrial companies based in the United States by market capitalization.
walmart (NYSE:WMT), procter and gamble (NYSE:PG)and costco wholesale (NASDAQ:COST) The most valuable consumer staple.
berkshire hathaway (NYSE: BRK.A) (NYSE: BRK.B), JP Morgan Chase (NYSE:JPM)and visa (NYSE:V) Leading the financial sector.
As of market close on March 6, all nine stocks were within 3.2% of their 52-week highs.
GE data by YCharts
Year-to-date, the financial sector has actually outperformed the S&P 500, with the industrial sector off the S&P 500's performance by less than 1% and the consumer staples sector up more than 4%. This is a big move for one of the safest sectors in the world. market.
Market leaders drive the market
The strong performance of the largest companies in these three sectors shows that the market rally is not just about AI, but about market leadership across multiple sectors. The strong performance of other sectors is another reason why the S&P 500 has performed well despite heavy losses since the beginning of the year. apple, alphabetand teslawhich together account for 10.5% of the entire S&P 500.
Participation from multiple sectors indicates the market rally is healthy. The S&P 500's price-to-earnings ratio (P/E) is 27.7, well above historical levels. Some may look at this valuation and say the market is too expensive. However, the S&P 500's valuation expansion is the result of tech and other growth stocks taking up a larger share of the market, and not all sectors are overvalued.
The industrial sector's P/E ratio is 26.1x, lower than the S&P 500. And interestingly, GE, Caterpillar, and Union Pacific all have P/E ratios below their sector averages.
On the other hand, the financial sector's P/E ratio is 18.4 times, and the consumer staples sector's P/E ratio is 25.7 times.
Indeed, these sectors tend to have lower growth rates, so they should trade below the market average. And while the valuations of many stocks are higher than their historical averages, they are not so far out of line that they could be called a bubble.
The stock market is still worth buying
The secret to a perfect bull market is profit growth and valuation expansion. In other words, improving fundamentals and investor optimism. These two traits are driving today's market, and that's not a bad thing.
Skeptics may point to specific parts of the market and say they could collapse. But overall, the market is rising for good reasons, not just because investors are greedy.
Investors aren't trading as well as they did during the 2022 crash. But the agreement isn't so bad that investors should stop adding new savings to their investment accounts on a regular basis.
Importantly, the market bull market is more widespread than many people realize, and it shows that the bull market is not solely dependent on the AI and technology sectors. That's a good sign.
Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. JPMorgan Chase is an advertising partner of The Motley Fool's Ascent. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Daniel Felber has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Berkshire Hathaway, Costco Wholesale, JPMorgan Chase, Meta Platforms, Nvidia, Tesla, Union Pacific, Visa, and Walmart. The Motley Fool has a disclosure policy.
