The 2024 stock market rally has been largely dominated by large-cap stocks, according to a recent analysis by Bespoke Investment Group. The group dissected the S&P 500’s year-to-date performance into ten baskets of 50 stocks, each organized by market cap size. The results were clear: the top decile of the 50 largest stocks in the index was the only subsector to outperform the broader S&P 500 this year.

This trend suggests that the smaller the stock, the weaker the returns. The shift towards large-cap stocks comes as investors have scaled back bets on interest rate cuts from the Federal Reserve this year due to persistent inflation reports. Large-cap stocks have shown more resilience to higher interest rates in an environment where many expect rates to be held high for longer than initially anticipated.

One of the reasons for this resilience is the robust earnings growth posted by large-cap stocks. Research from Deutsche Bank’s chief global strategist, Binky Chadha, showed that earnings for a basket of stocks labeled “Mega-Cap Growth and Tech” grew 39% compared to the S&P 500’s 5.9% year-over-year growth in the first quarter.

The fundamental case for large-cap stocks has been strengthened by the uncertain outlook for interest rates and economic growth. Meanwhile, small-cap stocks have continued to underperform regardless of interest rate movements. Morgan Stanley’s chief investment officer, Mike Wilson, expressed skepticism about a strong case for small-cap outperformance in the near future.