Technology companies are now exerting more control over the US stock market than any time since the Internet bubble.
Fuelled by three-year rallies in which Microsoft and Alphabet doubled, Amazon. com tripled and Facebook surged fivefold, computer and software stocks have increased to almost 21 per cent of the S&P 500 Index’s value, near a 15-year high. The distance between tech and the next-biggest group, banks, is close to the widest ever.
While the divergence rings warning bells for anyone who lived through the crash of 2000, tech’s ascent has its virtues and is in some ways a sign of the market’s health. For one, it reflects the diminishing influence of banks, which held a much larger share of the S&P 500 in the years before the financial crisis. It’s also evidence of rationality: tech is one of the only industries where earnings continue to expand.
Brent Schutte, chief investment strategist of Northwestern Mutual Life Insurance’s wealth-management unit, said, “The underlying economy is moving more toward technology, so to have it make up a bigger part of the market is probably not a disconnect”.
He continued, “This is not me saying that technology is cheap”.
“It’s just taking away that argument that this is a bubble waiting to happen”, added Brent.