Wall Street strategists are increasingly voicing concerns about the concentration of Big Tech stocks in this year’s stock market rally. But if history is any guide, there is little reason to fear.
Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Tesla and Facebook owner Meta Platforms now make up 28 per cent of the S&P 500 Index’s total value, up from 20 per cent at the start of the year, with a combined capitalisation of about $10 trillion.
That has left the benchmark – and the roughly $15 trillion in assets tracking it – vulnerable if only one or two of these companies stumbles.
However, worries that such performance extremes will inevitably falter appear to be premature. Comparable stretches of narrow leadership, including the tech bubble at the turn of the millennium, have been greater and longer-lasting, Bloomberg Intelligence analysis shows.
This year’s surge can also be seen as a reversal of 2022’s pummelling rather than a harbinger of doom.
“This isn’t something to be feared,” said Gillian Wolff, a senior associate analyst at BI.
“Unlike in the dot-com bubble, the outlook for most of these companies is very strong”, although earnings reports in the weeks ahead may prove decisive.
After the tech bubble in 1999 and the pandemic-fuelled collapse in 2020, once the six-month relative return differential between the biggest stocks and the rest reached current levels, it kept expanding for at least several more months, according to BI.
The return spread between the seven largest stocks in the S&P 500 compared with the rest of the index hit the widest since the dot-com bubble in the first six months of the year, according to data compiled by BI.
Excluding the group, which at times this year has included Berkshire Hathaway, the index would have only returned 6.3 per cent in the first half, instead of 16 per cent.
Nancy Tengler, chief investment officer of Laffer Tengler Investments, said her firm remains overweight with the tech sector, although it has taken profits on artificial intelligence stocks such as Broadcom, Palo Alto Networks and Amazon. However, she dismisses comparisons to the internet bubble bursting.
“This isn’t the same thing at all,” said Ms Tengler, who adds the market already discounted a recession last year.
“When there’s a new generational change in technology, you have to participate. This party is going to go on for a lot longer.”
That said, valuations for tech shares look high by historical standards, especially with the Federal Reserve likely to boost interest rates again this month.
Buoyed by the potential for artificial intelligence, the Nasdaq 100 Index trades at 26 times projected earnings, or about 30 per cent above its 10-year average. The tech-heavy benchmark is up more than 37 per cent this year, after sinking 33 per cent in 2022.
It’s not a surprise that Big Tech has rebounded this year because most of those companies shouldn’t have sold off as much as they did last year
Jimmy Lee,
chief executive of The Wealth Consulting Group
“I wouldn’t chase Big Tech right now,” said Eric Diton, president and managing director of Wealth Alliance, who is advising investors to buy cheaper dividend-paying stocks offering a steady stream of cash.
“We’re excited about AI, but the parabolic moves these stocks have made have already discounted the hereafter.”
The resilience of tech strength faces a big test when corporate scorecards start rolling in.
“We’re not worried about narrow concentration yet,” BI’s Ms Wolff said. “But we have to wait for earnings season to play out.”
Major banks kick off earnings season this week, with JP Morgan Chase reporting on Friday. Big Tech companies start unveiling results in late July. Going into the announcements, Wall Street expectations for the tech titans look solid.
The top five stocks in the S&P 500 in terms of market capitalisation – including Apple, Microsoft and Alphabet – are expected to post a 16 per cent profit expansion in the three months through June, BI data showed.
That compares with a more than 8 per cent profit contraction for the S&P 500 overall.
That partly explains why the cash streaming into the highfliers shows little sign of slowing. Technology stocks led inflows among the S&P 500’s 11 industry sectors in the week through July 5 with a $900 million addition, data compiled by EPFR Global showed.
Jimmy Lee, chief executive of The Wealth Consulting Group, is looking to buy pricey growth stocks if the benchmark gauge sees a pullback of 5 per cent to 10 per cent in the second half.
“It’s not a surprise that Big Tech has rebounded this year because most of those companies shouldn’t have sold off as much as they did last year,” Mr Lee said.
“A lot of investors have been wrong about looming recession and the worst of the economic and earnings pain may already be past.”
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MATCH INFO
Europa League final
Who: Marseille v Atletico Madrid
Where: Parc OL, Lyon, France
When: Wednesday, 10.45pm kick off (UAE)
TV: BeIN Sports
Sri Lanka-India Test series schedule
- 1st Test India won by 304 runs at Galle
- 2nd Test Thursday-Monday at Colombo
- 3rd Test August 12-16 at Pallekele
UAE currency: the story behind the money in your pockets
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Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
MATCH INFO
Champions League quarter-final, first leg
Ajax v Juventus, Wednesday, 11pm (UAE)
Match on BeIN Sports
Sheer grandeur
The Owo building is 14 storeys high, seven of which are below ground, with the 30,000 square feet of amenities located subterranean, including a 16-seat private cinema, seven lounges, a gym, games room, treatment suites and bicycle storage.
A clear distinction between the residences and the Raffles hotel with the amenities operated separately.
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BABYLON
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'Will%20of%20the%20People'
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The major Hashd factions linked to Iran:
Badr Organisation: Seen as the most militarily capable faction in the Hashd. Iraqi Shiite exiles opposed to Saddam Hussein set up the group in Tehran in the early 1980s as the Badr Corps under the supervision of the Iran Revolutionary Guards Corps (IRGC). The militia exalts Iran’s Supreme Leader Ali Khamenei but intermittently cooperated with the US military.
Saraya Al Salam (Peace Brigade): Comprised of former members of the officially defunct Mahdi Army, a militia that was commanded by Iraqi cleric Moqtada Al Sadr and fought US and Iraqi government and other forces between 2004 and 2008. As part of a political overhaul aimed as casting Mr Al Sadr as a more nationalist and less sectarian figure, the cleric formed Saraya Al Salam in 2014. The group’s relations with Iran has been volatile.
Kataeb Hezbollah: The group, which is fighting on behalf of the Bashar Al Assad government in Syria, traces its origins to attacks on US forces in Iraq in 2004 and adopts a tough stance against Washington, calling the United States “the enemy of humanity”.
Asaeb Ahl Al Haq: An offshoot of the Mahdi Army active in Syria. Asaeb Ahl Al Haq’s leader Qais al Khazali was a student of Mr Al Moqtada’s late father Mohammed Sadeq Al Sadr, a prominent Shiite cleric who was killed during Saddam Hussein’s rule.
Harakat Hezbollah Al Nujaba: Formed in 2013 to fight alongside Mr Al Assad’s loyalists in Syria before joining the Hashd. The group is seen as among the most ideological and sectarian-driven Hashd militias in Syria and is the major recruiter of foreign fighters to Syria.
Saraya Al Khorasani: The ICRG formed Saraya Al Khorasani in the mid-1990s and the group is seen as the most ideologically attached to Iran among Tehran’s satellites in Iraq.
(Source: The Wilson Centre, the International Centre for the Study of Radicalisation)
FIXTURES
Monday, January 28
Iran v Japan, Hazza bin Zayed Stadium (6pm)
Tuesday, January 29
UAEv Qatar, Mohamed Bin Zayed Stadium (6pm)
Friday, February 1
Final, Zayed Sports City Stadium (6pm)
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Washmen Profile
Date Started: May 2015
Founders: Rami Shaar and Jad Halaoui
Based: Dubai, UAE
Sector: Laundry
Employees: 170
Funding: about $8m
Funders: Addventure, B&Y Partners, Clara Ventures, Cedar Mundi Partners, Henkel Ventures
Company Profile
Name: Thndr
Started: 2019
Co-founders: Ahmad Hammouda and Seif Amr
Sector: FinTech
Headquarters: Egypt
UAE base: Hub71, Abu Dhabi
Current number of staff: More than 150
Funds raised: $22 million
Expert advice
“Join in with a group like Cycle Safe Dubai or TrainYAS, where you’ll meet like-minded people and always have support on hand.”
Stewart Howison, co-founder of Cycle Safe Dubai and owner of Revolution Cycles
“When you sweat a lot, you lose a lot of salt and other electrolytes from your body. If your electrolytes drop enough, you will be at risk of cramping. To prevent salt deficiency, simply add an electrolyte mix to your water.”
Cornelia Gloor, head of RAK Hospital’s Rehabilitation and Physiotherapy Centre
“Don’t make the mistake of thinking you can ride as fast or as far during the summer as you do in cooler weather. The heat will make you expend more energy to maintain a speed that might normally be comfortable, so pace yourself when riding during the hotter parts of the day.”
Chandrashekar Nandi, physiotherapist at Burjeel Hospital in Dubai
Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
