NEW YORK (US) – Thanks to a tech-fuelled rally, US stocks are within striking distance of fresh records. Some investors are diversifying beyond the rally leaders over concerns that big names are over-extended and that new regulation might be coming.
The S&P 500’s five biggest firms, Apple Inc, Microsoft Corp, Amazon.com Inc, Alphabet Inc and Facebook Inc, now account for 28% of the index’s weighting. They have been responsible for 25% of its earnings, said Goldman Sachs.
These tech-fuelled and net-driven stocks have gained 49.23% this year when compared to a 7% gain for the S&P 500. They are up 9.6% on average since Sept. 21, compared with 6.6% for the S&P 500. Analysts predict they might report strong third-quarter earnings in coming weeks and prove their mettle in a year when the pandemic has fuelled a work-from-home economy and pummelled firms linked to sectors like hospitality, aviation, travel and fossil fuels.
There are some worries that mega-cap tech firms are exposed to factors that affect their allure in the months to come. Being long technology is the most crowded trade of all time, as per a recent Bank of America fund manager survey.
“It’s all about trying not to have all your eggs in one basket,” said Laura Kane, head of Americas thematic investing at UBS Global Wealth Management. “It’s about trimming certain exposures and rotating into something else.”