April 28, 2023
“It’s concerning to have such concentration in a few names, and all those companies are in the very similar tech and communication services sectors,” said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management. “This concentration will drive broader market performance until it doesn’t.”
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1. Apple Inc. and Microsoft Corp. currently exert unprecedented influence over the S&P 500 Index. This heavy concentration is causing some investors to worry about the index’s increasingly top-heavy nature.
2. The combined weightings of these two companies in the benchmark have soared to a record 14% following strong earnings reports that have fueled a rally in technology stocks. If Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., and Nvidia Corp are included, nearly a quarter of every dollar put into the S&P 500 is split among these six companies.
3. Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, has expressed concern about the high concentration of these few tech and communication services companies in the index. He pointed out that this concentration will influence the broader market performance until it doesn’t.
4. Apple and Microsoft have added over $1 trillion in combined market value in 2023 alone, which accounts for nearly half of the gains for the entire S&P 500.
5. The world’s largest technology and internet firms have long dominated the benchmark index, but their stature was reduced in 2022 due to soaring interest rates and slowing growth, which caused valuations to plummet. Even though their stocks remain below peak levels, their superior performance this year relative to the market capitalization-weighted index is boosting their influence.
6. The tech giants have benefited from a flight to the perceived safety of their cash-rich balance sheets amid banking turmoil. Their momentum was further fueled by Microsoft’s profit and sales beating Wall Street estimates. Alphabet and Meta also exceeded expectations, which helped boost the tech-heavy Nasdaq.
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