Technology companies ended the year with their largest share of the market share, at the peak of a dot-com era in the latest illustration of their growing influence on global consumers.
According to an analysis of Dow Jones Market’s annual market-value data, companies that do everything from making phones to social-media platforms now account for about 40% of the S&P 500, a record 37% since 1999. Going back 30 years. Apple Inc.
Which became the first US company to hit a $ 2 trillion market capitalization earlier this year, accounting for more than 7% of the index by itself. At the beginning of last month, it accounted for 8% of S&P, the largest share for any share in data going back to 1998.</p><div>
<div data-layout="inline " data-layout-mobile="" class=" media-object type-InsetDynamic inline scope-web article__inset article__inset--type-InsetDynamic article__inset--inline ">
<div class="dynamic-inset-container article__inset__dynamic">
S&P 500 shares of total market value by region
Despite a recent pullback in popular tech stocks like Apple and Netflix<span class="company-name-type"> Inc.</span>
Many of these companies still number among market leaders for 2020, placing the S&P 500 at about 8% profit for the year and near all-time highs during the coronovirus-induced economic downturn. Tech stocks edged up markets early last week, exposing their stranglehold on major stock indices, before later pulling them down.
Trends such as remote work and cloud computing are increasing in these firms, helping tech companies expand their businesses when many are struggling. Yet the concentration of profit in a narrow set of companies worries many investors, who worry that stocks are too sector-dependent and to name a few, could bring a significant drop in the market.
The previous peaks under the influence of a sector on the S&P 500 have led to preterm sales. The tech sector collapsed after the dot-com bubble burst. The impact of banks was staggering in 2006, before the financial crisis, and in 2008 energy stocks declined after gaining a new high in their share of the index.
Some analysts say tech stocks are as overvalued as they were in the group's recent ascent, two decades ago, with strong earnings growth and almost zero interest rates. But many investors are experiencing more volatility in a sector that has grown significantly faster and pulled the rest of the market along with it.
"We have an indispensable digital lifestyle," said Alison Porter, a portfolio manager who focuses on the sector at Janus Henderson Investors. He remains confident in the largest technology companies due to his credible growth and prominence with people living at home during the epidemic.
This week investors will monitor the next round of third-quarter earnings from companies including Netflix, as well as the latest data on weekly jobless claims to estimate the health of the economy.
Because Congress has not passed additional stimulus measures, many traders hesitate to favor segments of the market that are more directly tied to economic growth. This is also true during the slow but strong expansion that ended earlier this year. While data show that tech giants employ fewer workers than some previous market leaders, they invest heavily in their businesses and allow other firms and consumers to buy and sell goods and services more efficiently .
Howard Marks, co-founder of investment firm Oaktree Capital Group LLC, said in a recent memo to clients that expensive tech stock measures relative to current profits could actually understand the potential of these companies because they spend so much to drive their own fast We do. development.
Analysts predict the tech sector's share in S&P 500 corporate profits to reach around 36% this year, FactSet data shows. The price / income ratio is 28 based on the group's profit from the previous year, compared to a ratio of 24 for the S&P 500 in the information-technology sector. Communications-services firms trade at 25 times earnings, while Apple, Microsoft<span class="company-name-type"> Corp.</span>
, Facebook<span class="company-name-type"> Inc.</span>
And alphabet<span class="company-name-type"> Inc.</span>
Rated in the mid 30s. Netflix's ratio is around 90, while Amazon.com's<span class="company-name-type"> Of inc</span>
Is about 130.
Even for more expensive Internet companies, many investors are willing to pay for their rapid growth.
"They have received an additional boost in the last 10 years because of a lack of a macroeconomic background," said David Lebovitz, global market strategist at JP Morgan Asset Management. He is recommending that clients favor companies within the sector that are not as expensive as the most popular Internet stocks.
At the same time, frenzied trading among the most popular Internet companies is a concern for many market watchers. There has been activity in some of the options associated with tech stocks. Options provide the holder with an option to buy or sell stocks at a fixed price until a certain date. Banks and other firms that often sell options to investors then defend themselves against prices going up or down from technical investments, a force that can increase volatility. Japanese Group Softbank Group<span class="company-name-type"> Corp.</span>
Earlier this year there was a large buyer of take-stock options.
The analysis of the concentration of technology in the S&P 500 is based on companies in the information-technology and communications-services sectors. In particular, that group excludes Amazon, an e-commerce giant that is in the consumer-discretionary sector. Including Amazon, which has a market value of about $ 1.6 trillion, which puts a big hit on the tech sector markets.
Because the S&P 500 is weighted by a company's market value, the largest Internet firms have seen a decline in several areas this year. In another example of the group's strength during the pandemic, the S&P is rolling out a version of the index that gives every share an equal weighting by about 10 percentage points this year, a difference that has been the most since the 1990s. Will be more.
"This background still continues, they are moving away from the pack," said PNC Financial Services Group chief investment strategist Amanda Agati, chief investment strategist at PNC Financial Services Group, which allows companies to work remotely and Recently technology, health-ready-to-learn and care-consumer-staple firms.
<div data-layout="wrap " data-layout-mobile="" class=" media-object type-InsetRichText wrap scope-web article__inset article__inset--type-InsetRichText article__inset--wrap ">
share your thoughts
What is the future for tech stocks? Will they continue to dominate the stock market next year? why or why not? Join the conversation below.