Investing.com — Artificial intelligence has powered a strong rally in U.S. equities since late 2022, but most of the gains have been concentrated in the stock market’s biggest players.
According to John Higgins, the chief markets economist at Capital Economics, the “boost AI has given to the US stock market since the launch of ChatGPT has been so strong that the S&P 500 would currently be closer to 5,000 without it,” around 25% below its actual level.
Capital Economics noted that the headline S&P 500 has become increasingly concentrated as tech giants at the centre of the AI boom have logged the strongest returns.
To gauge AI’s true effect, the chief markets economist compared the market-cap-weighted index with the performance of the average S&P 500 constituent.
He said that extrapolating the index from the end of 2022, based on changes in its equal-weighted version, shows the benchmark “would be quite close to 5,000.”
The firm added that differences between market capitalisation-weighted and equal-weighted sector indices reinforce this picture.
It said the “big-tech” sectors, information technology and communication services, “stand out very far from the crowd,” while the large-cap version of consumer discretionary has also beaten its EW counterpart.
Although the big-tech cohort dominates the narrative, Higgins emphasised that the rest of the S&P 500 still represents “>40% of its current MC.”
So far, it said, there has been “no clear impact” from AI on the broader index, but that may shift as adoption rises and investors better assess how the technology influences productivity and profits.
Some firms outside the tech complex are already moving. Capital Economics pointed to Walmart, which plans to integrate AI through a new partnership with OpenAI, as an example of a company in a traditionally defensive sector beginning to embrace the technology.
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