2022 was a year to forget, and 2023 became a year of regret — unless you were invested in the Magnificent Seven, a short list of the largest tech giants in the S&P 500. These companies, which included Nvidia (NASDAQ:NVDA) and Meta (NASDAQ:META), put global stock markets on their backs, converting Wall Street doomers into optimists.

The Nasdaq-100 rose over 55%, reaching an all-time high for its best year since 1999, while the S&P 500 sat points away from its own record after a 24% jump in 2023.

And 2024 could be the strongest yet: Last month, Bank of America’s Global Fund Manager Survey showed investors were the most bullish they’ve been in nearly two years — as money managers cut their cash holdings to a two-year low while loading up on stocks.

• Money managers had good reason to be optimistic — the S&P 500 ended the year on a nine-week winning streak, its longest rally in nearly 20 years.
• Investors were also excited about the impact of an increasingly dovish Federal Reserve, which is expected to cut interest rates three times this year.

According to NYT, major Wall Street banks also jumped on the bullish bandwagon, pushing the median year-end 2024 forecast for the S&P 500 up to 5,068.

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Unfortunately, there was little magnificent about stocks outside of the Magnificent Seven. A record 72% of S&P 500 stocks underperformed the index, according to Apollo’s Torsten Slok, as investors parked their cash in tried-and-true mega caps — but that could change soon:

• With interest rates set to fall, a record $5.88T held in money market funds could rotate into the stock market, fueling further gains in 2024, per Fundstrat’s Mark Newton.
• Much of it could show up in smaller, faster-growing companies that trade at significant discounts to their mega-cap peers — and will become more attractive as interest rates fall, per Lord Abbett analysts.

Everything rally: There’s evidence that a wider recovery is already underway as the performance gap of the S&P 500 and the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP), which treats all companies in the index with equal weight, “narrowed” at the end of 2023. And a rally among smaller companies could be exactly what the S&P 500 needs to break record highs.