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Power Concentrated in the Hands of a Few

April 13, 2023 | Thomas Neuhardt, Associate Research Analyst

This chart description is for illustrative purposes only and its accuracy cannot be guaranteed. Please see full disclosures at end of PDF document in the web post. General description: Combination area and line chart shows S&P 500 market cap and FAANG weighting in S&P 500. Chart subtitle: FAANG’s weighting in the S&P 500 rebounded in 1Q 2023 as tech stocks rallied. Chart source: Bloomberg as of March 31, 2023. Chart visual description: Left y-ais is labeled “S&P 500 Market Cap ($T)” and ranges from $0 to $45T. Right y-axis is labeled “FAANG % of S&P 500” and ranges from 0% to 25%. X-axis shows years in 1-year increments, with labels from 2000 to 2022; plotted data begins in May of 2000 and is through March 2023. S&P 500 Market Cap is plotted in light orange area, FAANG Weighting is a dark tan line overlaid. Chart data description: Since the mid-2000s, FAANG’s weighting has increased steadily, peaking near 20% in the second half of 2020, with some decline following, and recent increases in 2023. Its weight as of March 2023 stood at 15.9%. The S&P’s market cap has mirrored that growth, but despite FAANG’s decreased weighting in 2020, its market cap continued to increase until later in 2021 and its current market cap is $35.8T. End chart description. See disclosures at end of document.

2022, marred by macro uncertainty and aggressive rate hikes, marked the worst year for the S&P 500 since the Global Financial Crisis. Given the sensitivity of growth stocks to increasing rates, technology-related equities underperformed and significantly detracted from the S&P 500 given the group’s large index weighting. In the first quarter, however, technology rebounded strongly — with the Information Technology sector up almost 22% and Communication Services up 20.5%, relative to the broad index +7.5%.

FAANG, comprised of Meta (formerly Facebook), Apple, Amazon, Netflix, and Alphabet (Google), is a well-known group of five large tech stocks. Although only five companies, the group contributes significantly to the performance of the S&P 500, positively or negatively, given the aggregate market capitalization of the stocks. The group reached its largest combined weighting in the index — 19.9% — at the height of COVID in August 2020, before retreating to a still-outsized 13.4% in early January 2023. Amid tech’s first quarter rally, FAANG alone drove almost half of the S&P’s 7.5% return and ended the quarter at 15.9% of the index. While there are many different macro and micro factors at play, the path of these mega-cap tech stocks will continue to be a key determinant of index returns.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Thomas Neuhardt
Associate Research Analyst

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.