History Says Big Tech’s Rule Over US Stocks Shouldn’t Be Feared
Wall Street strategists are increasingly voicing concerns about the concentration of Big Tech stocks in this year’s stock-market rally. But if history is any guide, there’s little reason to fear.
$Apple(AAPL.US$ ., $Microsoft(MSFT.US$ , $Alphabet-C(GOOG.US$ $Alphabet-A(GOOGL.US$ parent Alphabet Inc., $Amazon(AMZN.US$ , $NVIDIA(NVDA.US$ , $Tesla(TSLA.US$ and Facebook owner $Meta Platforms(META.US$ now make up 28% of the $S&P 500 Index(.SPX.US$ ’s total value, up from 20% at the start of the year, with a combined capitalization of around $10 trillion. That’s left the benchmark — and the roughly $15 trillion in assets tracking it — vulnerable if just one or two of these companies stumbles.
$Apple(AAPL.US$ ., $Microsoft(MSFT.US$ , $Alphabet-C(GOOG.US$ $Alphabet-A(GOOGL.US$ parent Alphabet Inc., $Amazon(AMZN.US$ , $NVIDIA(NVDA.US$ , $Tesla(TSLA.US$ and Facebook owner $Meta Platforms(META.US$ now make up 28% of the $S&P 500 Index(.SPX.US$ ’s total value, up from 20% at the start of the year, with a combined capitalization of around $10 trillion. That’s left the benchmark — and the roughly $15 trillion in assets tracking it — vulnerable if just one or two of these companies stumbles.
However, worries that such performance extremes will inevitably falter appear to be premature. Comparable stretches of narrow leadership, including the tech bubble at the turn of the millennium, have been greater and longer-lasting, Bloomberg Intelligence analysis shows. This year’s surge can also be seen as a reversal of 2022’s pummeling rather than a harbinger of doom.
After the tech bubble in 1999 and the pandemic-fueled collapse in 2020, once the six-month relative return differential between the biggest stocks and the rest reached current levels, it kept expanding for at least several more months, according to BI.
The return spread between the seven largest stocks in the S&P 500 compared with the rest of the index hit the widest since the dot-com bubble in the first six months of the year, according to data compiled by BI. Excluding the group, which at times this year has included Berkshire Hathaway Inc., the index would have only returned 6.3% in the first half, instead of 16%.
That said, valuations for tech shares look high by historical standards, especially with the Federal Reserve likely to boost interest rates again this month. Buoyed by the potential for artificial intelligence, the Nasdaq 100 Index trades at 26 times projected earnings, or some 30% above its 10-year average. The tech-heavy benchmark is up more than 37% this year, after sinking 33% in 2022.
Major banks kick off earnings season this week, with JPMorgan Chase & Co. reporting Friday. Big Tech companies start unveiling results in late July. Going into the announcements, Wall Street expectations for the tech titans look solid.
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