Outsized losses of the S&P 500 are limited to the Big Tech club
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While stocks are trying to grab some gains on Friday, the S&P 500 fell even closer to a bear market on Thursday, now down 18.6% from its record closing high set in early January. If things turn around again this session, there is a good chance the benchmark could fall into bear territory for the first time since 2007 (barring the month-long freakout that occurred in March 2020). However, this time around, a small group of names account for much of the decline, prompting some discussion in the investing community about their influence and power.
Trillions in value erased: Only eight companies (of the 500 in the index) are responsible for nearly half of the weighted benchmark's year-to-date losses. Declines at Netflix (NFLX) have reached 70%, Meta (FB) and Nvidia (NVDA) are each down 43%, while Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL) and Tesla (TSLA) have fallen between 23% and 36% YTD. Under a theoretical model, if S&P Dow Jones Indices (SPGI) (CME) designed an equal weighting to the entire S&P 500, the index would only be down 13% in 2022 (but investors would also not have experienced the massive gains they notched in previous years).
"They're taking a huge chunk out of the S&P return," noted Anne Wickland, senior analyst at Easterly Investment Partners. "It's really lopsided because of how many of those big names make up the top part of the S&P 500."
Outlook: Some say it's too early to call the end of Big Tech dominance, but value and energy stocks like Exxon Mobil (XOM), Chevron (CVX) and ConocoPhillips (COP) have been supporting the S&P 500 this year. Commodities and related shares are being used as an inflation hedge, especially as Russia's war in Ukraine exacerbates energy prices globally. Dip buyers should also be on watch, according to Tony Roth, chief investment officer at Wilmington Trust, who feels Big Tech will continue to "provide the infrastructure or the backbone for the digital economy and do really well for many, many years going forward."