The Dow Jones jumped while Nvidia stock fell 6%, dragging the Nasdaq down

The common call on Wall Street to start 2024 was to extend the stock market rally.

But that has largely not happened this year, with NVDA alone accounting for about a third of the S&P 500’s gains this year.

While some have Recently highlighted The positive trend in earnings through the end of 2024 could still support the expansion, Mike Wilson, chief investment officer at Morgan Stanley, wrote in a note on Sunday that downward surprises in economic data put a damper on any upcoming expansion. Wilson highlighted the Citi Economic Surprise Index, which measures the extent to which data results are better than expectations.

The index has remained low through most of 2024 and just reached its lowest level in more than a year, dispelling the popular narrative of a stronger-than-expected economy supporting other areas of the market outside large-cap companies.

“With aggregate data access becoming more flexible at scale [year-to-date]“Several low-quality, economically sensitive areas of the market have lagged, while a narrow list of high-quality, high-value companies have performed,” Wilson said. “Less focused on inflation and interest rates.”

Therefore, investors turned to companies that thrived despite rising interest rates and slow economic growth. This extends beyond a few big tech names to include other stocks like Eli Lilly (LLY), Chipotle (CMG), and Costco (COST), all of which have easily outperformed the S&P 500 this year, Wilson noted. Wilson said it likely won’t extend to penny stocks at this point.

More importantly, Wilson added, this environment can continue without the broader market heading lower.

“Interestingly, a narrow range does not necessarily mean poor forward-looking returns,” Wilson wrote. “The weighted average index return after 6 months of narrow range readings is 4%.”