Tips for Traders: Best Moving S&P 500 Stocks in 2023 - Shutterstock
Given the unprecedented movements in stock markets in 2023, especially within the S&P 500, this edition of Tips for Traders, with insights from Bloomberg, focuses on understanding the shifts among the top 50 companies in the index.
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1. Tips for Traders: Analyzing Market Volatility
The top 50 S&P 500 companies moved up or down an average of nine places. This volatility, the most since 2013, underscores the need for traders to stay agile and informed about market shifts. Understanding the factors driving these movements is crucial for making informed trading decisions.
Notably, these top 50 now make up about 56 percent of the index’s weight, and the median valuation gap between each of them has more than doubled to $7 billion since 2013.
If anything, this suggests that as the S&P 500’s top-heavy skew worsens, there seems to be increasing competition for investor funds in the rest of the index.
2. Tips for Traders: Concentration Risk and Diversification
The concentration risk at the very top — e.g. Apple Inc. is now nearly worth more than France’s entire stock market — means investors are increasingly relying on fewer companies for returns.
Tips for Traders: Best Moving S&P 500 Stocks in 2023 - Shutterstock
As a result, the top 10 companies by value are now worth as much as the bottom 415, according to Bloomberg. Back in 2013, the top 10 were worth as much as the bottom 294 companies.
With fewer companies dominating the market to an unprecedented degree, traders should be wary of concentration risks.
Overall, the vitality can in part be explained by the ground-breaking business model shifts during the COVID-19 pandemic. Yet, this concentration means that a fall in one of the top 10 companies could drag down the entire index, and – with it – your investments.
Diversification across different sectors and companies becomes more crucial than ever in such an environment to spread risk and optimize returns.
3. Tips for Traders: Pandemic-Driven Opportunities
The Covid-19 pandemic has dramatically altered business landscapes, leading to significant changes in company valuations.
Among the companies that joined the top 50 this year are several that seized on opportunities created by the pandemic including Salesforce Inc., Advanced Micro Devices Inc., Intel Corp., Intuit Inc., Boeing Co., Netflix Inc. and Qualcomm Inc.
Tips for Traders: Best Moving S&P 500 Stocks in 2023 - Shutterstock
One of the most important tips for traders is looking out for companies that have adapted well to the new normal and possess long-term growth potential.
4. Tips for Traders: The Rise of Nvidia and Meta Platforms
Nvidia Corp.'s remarkable rise in valuation, fueled by AI-driven demand, and Meta Platforms Inc.'s recovery are notable trends. However, traders should be cautious with companies that have recently surged in value, as heightened expectations may lead to lower future returns.
Meta Platforms Inc.’s valuation boomed, recovering its 2022 losses to grow by $582 billion.
Meanwhile, Nvidia Corp. is the first company in at least 20 years to start a year outside the S&P 500’s top 10 and rise to finish among the top five. Its valuation grew by about $829 billion thanks to AI-fueled demand for its graphics processors.
Their performances may foretell lower returns, thanks to newly raised expectations. So be careful.
5. Tips for Traders: Sector-Specific Trends
The cruise industry, with companies like Royal Caribbean, has shown remarkable recovery, indicating potential in travel and entertainment stocks.
Royal Caribbean Cruises Ltd. rebounded from its pandemic crisis to rise 165 places to the 252th most-valuable company in the S&P 500. Peer Carnival Corp. similarly gained 151 spots to 301st.
Conversely, renewable energy stocks like Enphase Energy Inc. have experienced significant drops. Traders should monitor sector-specific trends to identify both opportunities and risks.
Drops in such a high-demand sector could be the precursors to a surge or could be the beginning of a long-lasting decline.
Tips for Traders: Best Moving S&P 500 Stocks in 2023 - Shutterstock
Enphase Energy Inc. — valued at more than $36 billion at the start of the year — lost almost half of its market value and fell 141 places to 352th as interest rate hikes curtailed spending on capital-intensive solar energy projects. Peer SolarEdge Technologies Inc. was removed from the index altogether after falling 67% this year.
Moderna Inc., Dollar General Corp., Albermarle Corp., AES Corp. and FMC Corp. all dropped at least 95 places this year, shedding a total of about $90 billion in value.
One of our most valuable tips for traders is to study the markets and economies where your companies of interest operate and try to understand the driving dynamics and future demand. Make your decisions accordingly.
6. Tips for Traders: Watching the New Entrants
New additions to the S&P 500, such as Fair Isaac Corp. and Blackstone Inc., have shown impressive performance. Keeping an eye on new entrants can reveal under-the-radar opportunities, as these companies may bring fresh momentum to the index.
Since joining the index in March, Fair Isaac Corp., the company behind FICO credit scores, has seen its share price rise by over 60%. Holding the 272th spot in the index, it would’ve increased its standing by nearly 117 places if it were included from January 1.
Blackstone Inc. now sits just within the top 50 — by far the highest among new additions this year — despite only joining in the September rebalance.
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The shifting dynamics within the S&P 500 in 2023 offer a complex but fertile ground for traders. By staying updated on market trends, diversifying portfolios, and carefully assessing new and existing companies, traders can navigate these changes effectively. This "Tips for Traders" guide aims to provide the knowledge and strategies needed to make the most of the evolving market landscape in 2023.
