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Apple (AAPL) and Microsoft (MSFT), the world’s two most valuable companies, saw their combined weightings in the S&P 500 ($SPX) (SPY) increase to a record 14% this week as technology stocks rallied on strong quarterly earnings results from Microsoft. Apple and Microsoft have added $1 trillion in market value this year, and their fortunes are pivotal in determining the direction of the S&P 500.
Six mega-cap stocks now control 25% of every dollar put into the S&P 500, when Alphabet (GOOGL), Amazon.com (AMZN), Meta Platforms (META), and Nvidia (NVDA) are included with Apple and Microsoft. Landsberg Bennett Private Wealth Management said, “It’s concerning to have such a concentration in a few names, and all those companies are in the very similar tech and communication services sectors. This concentration will drive broader market performance until it doesn’t.”
The $1 trillion combined market value of the rallies this year in Apple and Microsoft account for nearly half of the gains for the entire S&P 500. According to Global X ETFs, the growing influence of mega-cap technology stocks in major indexes puts passive investors at risk of over-exposure. “However, it does help that these companies are some of the most innovative names in the technology world, and none are looking at a secular decline anytime soon.”
The biggest technology and internet companies have always held a large exposure in the S&P 500, but their statures were diminished last year when soaring interest rates and slowing growth sent valuations tumbling. While most of the mega-cap technology stocks remain below their peak valuations, their outperformance this year relative to the market capitalization-weighted index has sparked their rising influence.
Mega-cap technology stocks have benefited from a flight to the perceived safety of their cash-rich balance sheets amid the recent bank turmoil. However, their recent rallies have begun to push valuations to near-extreme levels, according to Landsberg Bennett Private Wealth Management. Other analysts are concerned about the ever-increasing weight such few stocks have on the S&P 500. Aspirant LLC said, “Regardless of which companies dominate an index, the more top-heavy it becomes, the more risky it becomes as an investor.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
