Power Concentrated in the Hands of a Few

April 13, 2023 | Thomas Neuhardt, Research Associate

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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