{"id":7972,"date":"2023-05-12T18:47:24","date_gmt":"2023-05-12T22:47:24","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/the-sp-500-is-top-heavy-with-tech-heres-what-that-says-about-future-stock-market-returns\/"},"modified":"2023-05-12T18:47:25","modified_gmt":"2023-05-12T22:47:25","slug":"the-sp-500-is-top-heavy-with-tech-heres-what-that-says-about-future-stock-market-returns","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=7972","title":{"rendered":"The S&P 500 is top-heavy with tech. Here\u2019s what that says about future stock-market returns."},"content":{"rendered":"
\n

The 2023 rally by the S&P 500 index is being led by megacap tech-related stocks, whose weighting in the index is at a historically high level. That\u2019s sparked a lot of worry about the durability of the bounce.<\/p>\n

The S&P 500
\n SPX,
\n -0.16%<\/bg-quote>
\n is up more than 7% so far in 2023, after last year\u2019s 19.4% slide. The top 10 stocks hold a 29% weight in the index, and are responsible for around 70% of year-to-date performance, said Ross Mayfield, investment strategy analyst at Baird, in a Thursday note. <\/p>\n

\n

Within that top 10, seven of the leaders are \u201cBig Tech\u201d stocks, including the five largest, he observed, with Apple Inc.
\n AAPL,
\n -0.54%<\/bg-quote>
\n and Microsoft Corp.
\n MSFT,
\n -0.37%<\/bg-quote>
\n alone accounting for roughly 14% of the entire S&P 500.<\/p>\n

Mayfield notes that this worries investors \u201cbecause, typically, a \u2018narrower\u2019 market rally (i.e., fewer individual stocks rising) is seen as a sign of fragility and calls the rally\u2019s staying power into question.\u201d That could prove true, he wrote, but there\u2019s also reason to believe it might not be a big deal.<\/p>\n

Why is that? For one, unlike during the dot-com bubble of the late 1990s, the current crop of tech giants largely produce real earnings and strong cash flow, Mayfield said.<\/p>\n

And second, concentrated leadership is far from unusual. In fact, it\u2019s hard to avoid in an index that\u2019s weighted according to market capitalization \u2014 the value of a company traded on the stock market, calculated by total shares outstanding multiplied by the share price. In a market-cap weighted index like the S&P 500, each component is weighted according to its market capitalization.<\/p>\n

The structure is dynamic, Mayfield said, \u201crewarding recent winners, punishing recent losers, and ultimately reflecting the market\u2019s momentum via its weighting.\u201d<\/p>\n

Over the last 40 years, the weight of the top 10 stocks in the S&P 500 has rarely been below 20%, Mayfield said. He acknowledged that the market today is more concentrated than that, which adds risk, but observed that only Microsoft and Apple are well outside the norm.<\/p>\n

And what does a high level of concentration say about the future? Apparently, not much.<\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

\u201cIt\u2019s not a useful indicator for forward returns,\u201d Mayfield said, citing the chart above from Goldman Sachs, which shows that a high concentration at the top of the market doesn\u2019t imply weaker future returns. <\/p>\n

In fact, it doesn\u2019t imply much at all, he said. \u201cIn a vacuum, more stocks joining a rally is healthier, but a top-heavy market alone doesn\u2019t increase the risk of near-term underperformance.\u201d<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The 2023 rally by the S&P 500 index is being led by megacap tech-related stocks, whose weighting in the index is at a historically high level. That\u2019s sparked a lot of worry about the durability of the bounce. The S&P 500 SPX, -0.16% is up more than 7% so far in 2023, after last year\u2019s […]<\/p>\n","protected":false},"author":1,"featured_media":7973,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-7972","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nThe S&P 500 is top-heavy with tech. 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