The technology takeover of the
S&P 500
is continuing at a rapid rate.
The tech sector now accounts for a record 30% of the benchmark index, more than the next two largest components combined—healthcare and financials. The truer tech weighting probably is over 40% and it has been growing as tech companies have bested the overall index this year.
Led by the broader technology sector, the S&P 500 is up 5% so far this year, following its 26% total return in 2023, and the index is besting smaller-cap indexes this year by a wide margin. The
S&P MidCap 400
has risen about 2% so far in 2024, and the
Russell 2000
index has gained 0.5%. Much of the advance in the mid-cap index and all of the gain in the Russell has come from one technology stock:
Super Micro Computer.
The technology weighting understates the influence of tech companies in the S&P 500 index, because S&P Dow Jones Indices, which oversees it and other benchmarks, classifies many tech-related companies outside the technology sector.
Alphabet
and
Meta Platforms
are classified as communication-services companies along with the likes of
AT&T.
Alphabet accounts for about 3.8% of the S&P 500 while Meta has a weighting of around 2.5%.
Amazon.com
is the largest company in the consumer discretionary sector and weighs in 3.7% of the S&P 500.
Tesla,
another consumer discretionary stock, is another 1.2% of the index. While it’s mainly a car company, some analysts attribute more value to its technology offerings, such as fully autonomous driving.
Another tech-driven company,
Uber Technologies,
now is the largest industrial company, ahead of
Caterpillar.
Add up the technology sector—dominated by
Apple,
Microsoft,
and
Nvidia
—to the other tech-related companies and the total “tech” weighting exceeds 40%.
The tech takeover of the S&P 500 has made the index so difficult to beat for active managers of all stripes, particularly with the rise of the Magnificent Seven big tech stocks.
“The S&P 500 is an awesome asset class,” said Todd Ahlsten, chief investment office at Parnassus Investments, at the Barron’s Roundtable last month. “Think about the innovation in cloud computing, semiconductors, life sciences, industrial automation, transportation, electrification. This index is a collection of advantaged assets that continue to get more advantaged. TAMs [total addressable markets] are increasing, as are profit margins.”
The huge technology weighting in the S&P 500 makes the index vulnerable to a tech pullback, but so far this year, the tech sector continues to set the pace.
Write to Andrew Bary at [email protected]
Read the full article here
