Benefiting from the artificial intelligence boom, communications services and technology stocks fueled the stock market rally for the second consecutive year in 2024. On the other hand, it was a tough year for healthcare and basic materials. Thanks to a stumble in the fourth quarter, these sectors have retreated as the bull market enters its third year. Basic materials was the only sector to end 2024 in the red.
The upward trend in communications services and tech stocks has continued since 2023. So did another important feature of this bull market: the concentration of returns in a small number of stocks.
Of the 24.09 percentage points gained by the U.S. market index in 2024, 13.2 were attributed to just eight stocks that are considered to primarily benefit from artificial intelligence technology: Nvidia NVDA, Apple AAPL, Amazon.com AMZN , Meta Platforms META, Tesla TSLA, Broadcom AVGO, Microsoft MSFT, and Alphabet GOOGL. In other words, 55% of the market’s total profits in 2024 will come from these companies. These same companies contributed 53% of the overall market profit in 2023.
AI stocks drive rise in technology and communication services
AI stocks, as measured by the Morningstar Global Next Generation Artificial Intelligence Index, rose 37% in 2024. These stocks are heavily weighted in the technology and communications services index and have influenced the overall performance of the sector in recent years, for better or for worse. In 2024, the situation has improved significantly.
NVIDIA, which accounts for 14.56% of the tech index, was the top contributor in 2024, adding 15.60 points of the 36.16 percentage point increase. Apple, the next largest contributor, had a weight of 17.26% in the index and contributed 6.02 percentage points to the return. The next three largest contributors were Broadcom, Microsoft, and Palantir Technologies PLTR. Palantir has soared 340.48% since the beginning of the year, making it the third-highest gainer among the index’s constituents.
The top technology performer in 2024 was AppLovin APP, which soared 712.62%. The second best performer, MicroStrategy MSTR, surged 358.54%. However, AppLovin and MicroStrategy make up a very small portion of the technology index. Together, they add less than 1 percent to your overall profit.
Profits were even more concentrated in the communications services sector. Alphabet, which has a 41.59% weight in the Morningstar U.S. Communications Services Index, contributed 15.33 points of the index’s 39.13 percentage points increase in 2024. Meta, which had the next highest contribution, accounted for 24.86% of the index and added 14.26 points. Express the overall profit in percentage points. Netflix NFLX (with the highest return in the sector at 83.07%), AT&T T, and Walt Disney DIS round out the top five major contributors.
Basic materials and healthcare stocks plunge in the fourth quarter
Entering the fourth quarter, the basic materials and healthcare sectors looked set to be on a double-digit upward trajectory in 2024. However, the Morningstar U.S. Basic Materials Index fell 12.10% in the quarter and ended the year down 1.78%. It was the only sector to record negative returns in 2024. The Morningstar US Healthcare Index fell 9.84% in the quarter and ended 2024 barely positive with a return of 2.67%. After Donald Trump’s election, health care stocks tumbled amid concerns that his alignment with Robert F. Kennedy Jr. on public health issues could pose challenges for the pharmaceutical industry.
In healthcare, CVS Health CVS fell 40.76% in 2024, reducing sector returns by 0.73 percentage points, the largest decline among healthcare stocks. Next was Humana HUM with a minus of 0.43 percentage points and Elevance Health ELV with a minus of 0.42 percentage points.
The main drags on the basic materials sector were steel maker Nucor NUE, down 1.19 points, acetic acid producer Celanese CE, down 0.80 points, and chemical maker Dow DOW, down 0.74 points.
The author owns no shares in any securities mentioned in this article. Learn about Morningstar’s editorial policy.
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