The S&P 500 ( ^GSPC ) just logged its best May in more than 30 years in large part due to the return of dominance from the "Magnificent Seven" tech stocks.
Apple ( AAPL ), Alphabet ( GOOGL , GOOG ), Microsoft ( MSFT ), Amazon ( AMZN ), Meta ( META ), Tesla ( TSLA ), and Nvidia ( NVDA ) combined for 62% of the S&P 500's advance in May. Nvidia and Tesla led the gains, rising more than 20% in the month. Overall, six of the seven stocks outperformed the S&P 500's 6.2% gain for May, with Apple ending the month as the lone laggard.
DataTrek Research co-founder Nicholas Colas wrote in a note to clients that Big Tech's recent outperformance shows "this important slice of the US equity market has genuine momentum."
"The fact that capital is rotating back into US large cap Tech/Big Tech is further proof that the market has finally found its footing," he added.
There are several factors that have been driving these stocks higher. But perhaps chief among them is that Big Tech continues to churn out stronger earnings growth than the rest of the S&P 500.
In the recently reported first quarter, the Magnificent Seven group of stocks grew earnings by a combined 27.7% compared to the same quarter a year ago, well above the 9.4% growth seen from the other 493 members of the index, per FactSet senior earnings analyst John Butters.
The Big Tech companies surprised analysts more too. In aggregate, Magnificent Seven earnings growth beat Wall Street's estimates by 11.7%, compared to the 4.6% beat for the other 493 companies.
Citi US equity strategist Drew Pettit told Yahoo Finance that this helps explain why the Magnificent Seven have been outperforming other stocks amid the run higher in the market over the past month. The Roundhill Magnificent Seven ETF ( MAGS ) has risen about 11% over the past month, roughly doubling the S&P 500's percentage return in that same time period.
"With the tariff concern and some of the macro hesitancy, like investment hesitancy and buying hesitancy, you're back to growth," Pettit said. "When valuations aren't cheap versus history for anything, might as well go to the place that's got some [earnings] upside."
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Charles Schwab senior investment strategist Kevin Gordon pointed out that Big Tech also led the market lower during the sell-off that began in late February and carried through April.
"Tech and the Magnificent Seven, in general, got hit the hardest," Gordon said. "So it's not surprising to see them bounce the hardest as well."
Another reason for the Magnificent Seven's surge is that investors have favored large-cap stocks in the most recent market rally. When investors are concerned about a rise in bond yields, as has been the case over the past several weeks with the 30-year Treasury yield ( ^TYX ) briefly pressing near levels not seen since the great financial crisis, large-cap stocks have outperformed.
This has Pettit and the strategy team continuing to describe a preference toward a "growth is defensive trade." He said as long as rates stay elevated and the 10-year Treasury yield ( ^TNX ) hasn't fallen closer to 4%, "there's only one game in town," and it's growth.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer .