NEW YORK, March 22 (Reuters) - A reassuring economic

outlook and dovish signals from the Federal Reserve are

encouraging investors to look beyond the massive growth and

technology stocks that have fueled the U.S. stock market's gains

over the past year.

Though rallies in stocks such as Nvidia ( NVDA ) and Meta

Platforms ( META ) have been the market's main individual

drivers in 2024, the financials, industrials

and energy sectors are also outperforming the S&P 500's

9.7% year-to-date gain. That has eased worries that the market

was becoming increasingly tied to the fortunes of a small group

of stocks.

A belief that the economy will remain resilient while

inflation fades has prompted investors to look for winners

outside of the megacaps. That view received a boost from the Fed

earlier this week, when the central bank expressed confidence it

would be able to tamp down inflation and cut interest rates this

year, even as it raised its forecast for how much the U.S.

economy will grow.

"There is more confidence that the Fed is going to be able

to ... get inflation approaching their longer-term targets

without a recession," said Scott Chronert, head of U.S. equity

strategy at Citi, which is overweight the technology, financial

and industrial sectors. "You are going to take a little bit more

comfort that you can own a bank or an industrial if you think

the Fed is going to lower rates at some point here."

Investors in the coming week will be watching Friday's

personal consumption expenditures price index that will offer

the latest read on inflation. The end of the first quarter also

could prompt volatility as fund managers adjust their

portfolios.

The broadening rally contrasts with last year, when

uncertainty over the economic outlook prompted investors to seek

shelter in the so-called Magnificent Seven group of megacap

stocks, drawn by their dominant industry positions and strong

balance sheets. Only the sectors that housed megacaps - tech

, communication services and consumer

discretionary - outperformed the S&P 500's 24% gain

last year.

This year, the financial and industrial sectors are up 10.1%

and 9.9%, respectively, while energy has gained 10.3%.

More broadly, the Magnificent Seven - Apple ( AAPL ), Nvidia ( NVDA )

, Alphabet, Tesla, Microsoft ( MSFT )

, Meta Platforms ( META ) and Amazon.com ( AMZN ) - have

been responsible for 40% of the S&P 500's gain as of Thursday,

according to S&P Dow Jones Indices. That compares with a share

of over 60% last year.

The wider rally "means that leadership isn't so concentrated

and susceptible to a correction," said Robert Pavlik, senior

portfolio manager at Dakota Wealth.

After the Magnificent Seven all posted huge gains in 2023,

performance among them has diverged more this year, giving

investors another reason to look at the rest of the market.

Enthusiasm over artificial intelligence has helped fuel a

90% gain in shares of Nvidia ( NVDA ) so far this year, while Microsoft ( MSFT )

has gained 14.5%. On the other side of the ledger, Apple ( AAPL ) and

Tesla are down about 11% and 32%, respectively, for the year.

The latest blow for Apple ( AAPL ) came this week when the Department

of Justice alleged the iPhone maker monopolized the smartphone

market, highlighting the regulatory risks that could make

investors wary of Big Tech.

In another sign of broadening, more S&P 500 stocks are

outperforming the benchmark, 180 so far this year as of Thursday

versus 150 last year.

Some corners of the market, such as small caps, still look

subdued. The Russell 2000, which is focused on smaller

companies, is up just 2.2% year-to-date.

Some investors believe the group could get a boost from the

Fed's outlook, which kept in place a previous forecast of three

25 basis-point interest rate cuts, despite the central bank's

upgraded growth projections.

"As the Fed starts to lower interest rates, that creates

liquidity and makes financing easier," said Jack Ablin, chief

investment officer at Cresset Capital. "Who's most advantaged?

Not the megacap stocks that have unfettered access to capital no

matter what rates are, but really the smaller, lesser-known

names."

The broadening trend could take a hit if the economy begins

floundering or runs too hot, upsetting the so-called Goldilocks

narrative that has supported markets in recent months.

Some investors also believe the market is due for a pullback

after a run in which the S&P 500 has gained 27% since late

October.

Others, however, are betting the trend will continue. Peter

Tuz, president of Chase Investment Counsel, said his firm

recently purchased shares of Goldman Sachs ( GS ) and oil

services company Tidewater while reducing its megacap

holdings, including selling its Apple ( AAPL ) stake.

"The market is broadening out," he said. "You're just seeing

that there's more ways to make money this year than the Mag 7."