Since the birth of the Standard and Poor’s 500 (S&P 500) on the 4th of March, 1957, there has been a remarkable love story in the stock market arena. Out of the 500 companies tracked by the S&P 500 index, there are seven Big Tech companies that account for approximately 30% of the total market capitalization of the index. Experts like Michael O’Rourke, who is the chief market strategist with JonesTrading, have noticed that, to a large extent, these big tech companies are also responsible for the positive performance of the index in 2023.
The Dotcom Bubble
From the mid-1990s to the early 2000s, the stock market shares of internet service and technology companies in the United States were bullish. This phenomenon was known as the tech boom or dotcom bubble. The tech boom was fueled by the popularity of the internet and the hefty financial investments from venture capitalists and traditional investors into these tech companies. On the 24th of March, 2000, the S&P 500 index hit an intraday high of 1,552.87 with an estimated price-to-earnings ratio of 28.3, gaining over 38.1% over a period of 2 years. Following the bubble burst and the 2002 stock market downturn, the S&P 500 index lost 24.8% but performed better than the Nasdaq.
Outperforming the rest
Over two decades after the Dotcom bubble burst, tech stocks are still calling the shots in the S&P 500 index. Experts believe that seven big tech stocks, which include Apple Inc., Microsoft Corp., NVIDIA Corp., Alphabet Inc., Meta Platforms Inc., Amazon.com Inc., and Tesla Inc., make up over 110% of the total gains of the S&P 500 in 2023.
To know the market direction of the S&P 500, traders monitor the S&P 500 futures chart, which tracks the market in real-time to show price movements within the index and help traders try to predict future price changes through ES futures. However, history seems to paint a realization that the fate of the S&P 500 index is dependent on two titans in big tech: Microsoft and Apple.
The S&P 500 futures chart shows that the index has gained over 10% so far this year, and analysts believe that this is because Apple and Microsoft have gained over 30% each this year, with a combined market value of over $15 trillion (approximately 15% of the aggregate market value of the S&P 500). Commentators argue that investors are tilting towards big tech stocks while turning their backs on everything else.
Conclusive Reflection: Will this tech love affair end in tears?
Wall Street Strategists and other commentators around the world have raised concerns about the domination of tech companies in the stock market. However, others argue that Big Tech rescued the S&P 500 this year by reducing the effect of other underperforming stocks on the index.
According to Nir Kaissar, a Bloomberg Opinion columnist on markets, the concentration of these big tech stocks serves to enhance the stability of long-term investments. As we wait to see the end of this love affair, it is very important to carry out thorough research and due diligence before making any investments in the stock market.