The share of five bigtechs in the S&P 500 has grown to 25%. What does this mean?
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The market value of five technology companies — Apple, Microsoft, Alphabet, Amazon and NVIDIA — reached 25% of the total capitalization of the entire S&P 500 index. Such a significant influence of these companies on the broad market carries risks for investors, writes Business Insider.
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What is known
This is the first time in history that the five most expensive public companies in the United States belong to the same industry.
According to the British asset management company Schroders, the last time the weight of the top 5 companies in the index exceeded 25% was more than half a century ago — in the 1960s. But then these were companies from different sectors of the economy — AT&T, General Motors, Dupont, Exxon and General Electric.
Shares of companies from the same industry, as a rule, depend on the same macroeconomic factors. For the IT sector, these are, for example, interest rates. Their growth hits technology companies harder than others, since they are more dependent on borrowed funds.
Read: Shares of NVIDIA soared by almost 30% and renewed the all-time high
According to the founder of the analytical company Minerva Analysis, Kathleen Brooks, due to the large influence of technology companies on the broader market, it is now more vulnerable to sharp fluctuations in the prices of big-tech stocks.
“If interest rates rise to 7%, as Jamie Dimon warned the other day, it will be bad news for the entire market,” Brooks concluded.
Let’s remind
Earlier this month, the head of JPMorgan Chase, Jamie Dimon, did not rule out that the key rate in the US will eventually rise to 7%. Now it is at the level of 5-5.25%.
The growth of the S&P 500 this year was largely due to the rally in big tech stocks.
Since the beginning of the year, the quotations of each of the five companies have increased by tens of percent, while the shares of NVIDIA have more than doubled. The demand for shares was promoted by expectations of a rate cut in the US already this year and the development of technologies related to artificial intelligence.
Read: Virgin Galactic’s hard landing and NVIDIA’s new record: ups and downs of the week
As a result, the technology index NASDAQ 100 has jumped by 30.7% since the beginning of the year. For comparison, the S&P 500 gained 9.53% during the same period. SPXT ProShares S&P 500 Ex-Technology ETF (SPXT), which tracks the performance of stocks in the S&P 500 excluding the technology sector, has gained just 2.12% since the beginning of the year.
The rapid growth of shares in the IT sector against the background of hype around artificial intelligence has given rise to fears that a new bubble has formed in the market. Nevertheless, Jeremy Siegel, professor of finance at the Wharton School of Business at the University of Pennsylvania, said that fears are exaggerated, and there is no bubble in the market yet.
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Author: 
Editor of the news feed Yaroslav Holoborodko Writes on the topics: Macroeconomics, stock market, cryptocurrency
- Shares (securities)
- Stock market
Source: Ministry of Finance
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