Apple and 4 techs dominate the S&P 500

“The last time the S&P 500 had such a high weighting in a single sector (tech) was right before the dot com bubble burst in 2000.”

From Paul LaMonica’s “The S&P 500 is really the S&P 5” posted on CNN Business Tuesday morning:

The S&P 500 is supposed to be a broad representation of the US economy. So if you’re plowing money into an index fund, you might think you’re doing a good job of diversifying your assets.
You’d be wrong. These days, it’s basically the S&P 5.

The five largest companies in the S&P 500 — all tech companies — account for nearly 20% of the market value of the entire index. Apple, Microsoft, Amazon, Google owner Alphabet and Facebook  are collectively worth $4.85 trillion. The S&P 500 (SPY) has a market value of around $26.7 trillion.

This could be a big problem for investors who are planning for retirement or other long-term goals who don’t understand the risks of having all their proverbial eggs in one basket…

The last time the S&P 500 had such a high weighting in a single sector (tech) was right before the dot com bubble burst in 2000, according to Tocqueville Asset Management portfolio manager John Petrides.

My take: Yes, but Apple, Amazon, Google and Microsoft are not exactly Pets.com. Facebook I’m not so sure about.

12 Comments

  1. Jerry Doyle said:

    I participated in and lost money during the dot com bubble burst in 2000. There is a humongous difference between Apple, Microsoft, Amazon, Google and Facebook and most all those dot com start-ups around the turn of the century. The companies named above all are cash machines, turning out huge amounts of revenues and making solid profits. What I remember clearly about companies during the dot com burst was hardly any of them made much (if any) revenues let alone profits. Apple, for example, is a cash cow. It has more cash on hand then the eyes can see in the distance, and more than the GNP of many European countries. These are viable businesses. Most all dot com businesses were not so.

    4
    February 11, 2020
  2. Ken Cheng said:

    I vaguely recall Microsoft had a PE in excess of 66 back in the dot bomb days. They’re less than half that today. So, while the market is top heavy, there are earnings to support it, unlike the frothy dotcom days.

    2
    February 11, 2020
  3. Gregg Thurman said:

    Most all dot com businesses were not so.

    The dot.com bubble is a horrible compare to what is occurring today. The bubble was built on IPO business plans (with near zero revenue and no profits) that purported to be the next wave ala the Industrial Age, and was fueled by Henry Blodgetts “never saw an internet IPO he didn’t like” stock recommendations. None of Blodgett’s recommendations exist today – none. For his callous (self-enriching) recommendations he was banned for life from employment, in any capacity, on Wall Street.

    Today’s 5 horseman of “tech” address business models that essentially didn’t exist 20 years ago, or have disrupted then existing models into near extinction (Apple being the leader among this group).

    0
    February 11, 2020
  4. Gregg Thurman said:

    Lamonica’s warning of dire consequences (of not diversifying properly) is a journalistic falsehood. If an index consisting solely of the 5 biggies existed 20 years ago, an investor buying into it would have outpaced the balance of the S&P 500 by nearly double since 2009.

    2
    February 11, 2020
    • David Emery said:

      I think you overstate that. The key point is the risk associated with lack of diversity in the index, and that’s a valid consideration if you believe that good investing requires a diversified portfolio. (Whether or not that is “true” is a whole ‘nuther debate, I think.)

      0
      February 11, 2020
  5. John Konopka said:

    I’m not sure I’d call Amazon and FB tech companies. Maybe not even Google. Those three use a lot of computers and software, but Amazon is a retailer, FB and Google Hoover up your private information to sell ads (surveillance capitalism).

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    February 11, 2020
    • Aaron Belich said:

      The face of Amazon is retail and logistics, but the profits still come from their computing services, Amazon Web Services (AWS). They are the 800 pound gorilla that Google, Microsoft are trying to tackle, along with a slew of other, smaller SAAS companies (many still on the “path to profitability”). It’s still Gulliver in the land of the Lilliputians.

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      February 11, 2020
    • S Lawton said:

      Amazon stopped being just a retailer a long time ago. As Aaron pointed out AWS is the cloud provider the big guns are trying to catch up with and Apple is buying their services and that is only a part of their depth.

      0
      February 11, 2020

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