Three technology titans have powered nearly half of the S&P 500’s advance this year, a worrying sign for investors who expected tech’s dominance to give way to cyclical sectors, like materials or industrials, as the economy improved.
whose shares have soared 28% so far this year, has accounted for 27% of the broader index’s 1.6% gain through Tuesday, according to S&P Dow Jones Indices’ data. That is followed by
, which has contributed 13%, and Netflix Inc. at 8.3%.
“When you see a Netflix or Amazon leading, it’s not necessarily a great sign of investor confidence, since you know those names can always deliver growth no matter what’s going on,” said
founding partner and chief investment officer at Cresset Wealth Advisors.
Investors have fretted in the past about the dominance of a single sector or stock in the market, but those fears have generally proved unfounded. Markets continued marching higher even after shares of
which was a driver of the rally, stalled for part of 2016.
The S&P 500 technology sector has driven more than three quarters of the index’s gains, according to S&P Dow Jones Indices. The next biggest contributor is the consumer-discretionary sector—which includes tech-focused Amazon and Netflix—with more than a third of the advance.
To some investors, the continued outperformance of technology-oriented companies is surprising. After the tech sector jumped 37% in 2017, nearly doubling the broader S&P 500’s advance, many investors expected the rally to stall or be overtaken by other sectors. Among those expected to gain were cyclical stocks like commodity producers, manufacturers and banks whose businesses tend to improve as the economy strengthens and prices rise.
Instead, energy shares have extended their rout, even as U.S. crude prices have bounced off their 2014 lows.
have together chipped away about 12% from the S&P 500’s year-to-date advance. And industrial firms, which soared after the 2016 presidential election on bets that the Trump administration would pump up infrastructure spending, have lagged behind the S&P 500, as some investors have questioned how the administration will secure funding for its plan.
Other investors predicted bank shares would begin outperforming the broader market again after the passage of the Republican tax overhaul. And those companies have seen a boost:
& Co. and
Bank of America
together have made up 12% of the S&P 500’s 2018 gains, according to S&P Dow Jones Indices. Banks have also been a big driver of the Dow Jones Industrial Average’s 1% gain this year, with
Goldman Sachs Group
and JPMorgan lagging only behind
Yet enthusiasm for technology stocks hasn’t tapered off. Roughly a third of global fund managers say they are overweight technology stocks in their portfolios, according to a Bank of America Merrill Lynch survey conducted at the start of the month. That was the highest share of overweights of all 11 S&P 500 sectors.
Tech’s dominance has helped the Nasdaq Composite, which heavily weights shares of technology companies, outperform other indexes so far this year with a 4.8% increase.
Sector contributions to the S&P 500’s year-to-date gains