With help from the artificial intelligence boom, communication services and technology stocks fueled the stock market’s rally for a second straight year in 2024. Meanwhile, it was a tough year for healthcare and basic materials. Thanks to stumbles in the fourth quarter, these sectors brought up the rear as the bull market entered its third year. Basic materials were the only sector to finish 2024 in the red.
The path higher for communication services and tech stocks continued trends from 2023. It was a similar story for another key feature of this bull market: returns concentrated in a handful of stocks.
Out of the 24.09 percentage points gained by the US Market Index in 2024, 13.2 came from just eight stocks, which are mainly seen as benefiting from artificial intelligence technologies: Nvidia NVDA, Apple AAPL, Amazon.com AMZN, Meta Platforms META, Tesla TSLA, Broadcom AVGO, Microsoft MSFT, and Alphabet GOOGL. In other words, 55% of total market gains in 2024 can be attributed to these companies. These same companies contributed 53% of total market gains in 2023.
AI Stocks Drove Gains in Tech and Communication Services
AI stocks, as measured by the Morningstar Global Next Generation Artificial Intelligence Index, climbed 37% in 2024. These stocks carry significant weight in the technology and communication services indexes, dictating overall sector performance in recent years, for better or worse. In 2024, it was largely for the better.
Nvidia—which holds a 14.56% weight in the tech index—was the leading contributor in 2024, adding 15.60 of its 36.16-percentage-point gain. The next-largest contributor, Apple, holds a 17.26% weight in the index and contributed 6.02 percentage points to its return. The next three biggest contributors were Broadcom, Microsoft, and Palantir Technologies PLTR. Palantir soared 340.48% on the year, marking the third-best gain of any stock in the index.
The top tech performer in 2024 was AppLovin APP, which exploded by 712.62%. The second-best performer, MicroStrategy MSTR, surged 358.54%. AppLovin and MicroStrategy hold very small weights in the tech index, however. Combined, they added less than 1 percentage point to its overall gain.
In the communication services sector, gains were even more concentrated. Alphabet, which holds a whopping 41.59% weight in the Morningstar US Communication Services Index, contributed 15.33 of the 39.13 percentage points gained by the index in 2024. The next-largest contributor, Meta, holds a 24.86% weight in the index and added 14.26 percentage points to its overall gains. Netflix NFLX (which posted the highest return in the sector, at 83.07%), AT&T T, and Walt Disney DIS round out the top five leading contributors.
Basic Materials and Healthcare Stocks Plummeted in Q4
Going into the fourth quarter, the basic materials and healthcare sectors looked to be on track for double-digit gains in 2024. However, the Morningstar US Basic Materials Index dropped 12.10% in the quarter, finishing the year down 1.78%. It was the only sector to record a negative return in 2024. The Morningstar US Healthcare Index fell 9.84% in the quarter and ended 2024 just barely in the green, with a 2.67% return. Healthcare stocks sold off sharply after Donald Trump’s election, driven by concerns that his alignment with Robert F. Kennedy Jr. on public health issues might pose challenges to the pharmaceutical industry.
On the healthcare side, CVS Health CVS fell 40.76% in 2024 and detracted 0.73 percentage points from the sector return—the largest detraction of any healthcare stock. Humana HUM, which detracted 0.43 percentage points, and Elevance Health ELV, which detracted 0.42 percentage points, were the next two largest detractors.
The leading drags on the basic materials sector were steel manufacturer Nucor NUE, which detracted 1.19 percentage points, acetic acid producer Celanese CE, which detracted 0.80 points, and chemical producer Dow DOW, which detracted 0.74 points.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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