The S&P 500 is often called the S&P 5 these days, due to the dominance of the index's five biggest stocks – Apple, Microsoft, Amazon, Google and Facebook. It's hard to disagree, with those five stocks now accounting for a record 22 per cent of the index.
According to Credit Suisse, the five stocks have grown revenues by 11.2 per cent over the last year, whereas revenues for the remaining 495 stocks in the index are flat. However, the S&P 500 isn't the only index dependent on a handful of mega-cap stocks; so too is the tech-heavy Nasdaq-100. Although the Nasdaq keeps hitting all-time highs, the percentage of Nasdaq stocks above their 50-day moving average has been falling since June. Data from BCA Research shows the technology sector's performance in 2020 is nowhere nearly as impressive if you exclude Apple and Microsoft from calculations.
Similarly, Jonathan Krinsky of Bay Crest Partners notes the Nasdaq Composite index gained 1.49 per cent on July 31st, even though most stocks in the index actually declined. This kind of divergence never once happened between 2004 and 2019.
The three most lopsided daily readings in the last 16 years have all come in the last seven weeks, notes Krinsky.
There's a simple explanation: the top three Nasdaq-100 stocks (Apple, Microsoft and Amazon) are worth as much as the bottom 87 stocks in the index. The big five are now so dominant, notes Ritholtz Wealth Management's Michael Batnick, "it hardly matters what the rest of the stocks are doing".