Here’s What the S&P Looks Like Without Big Tech (Yikes!)
Tech stocks have been dominating the stock market in 2020.
But you might not realize just how much…
Yesterday, the big S&P 500 closed at a new all-time high. Considering the context, it’s pretty hard to believe…
So maybe you shouldn’t believe it.
That’s because, absent the insanely good performance from Big Tech in 2020, the S&P 500 would still be in negative territory:
The 92 stocks in the S&P 500 from the Tech and Communication Services sectors (which now includes stocks like Google’s parent company and Facebook) have dramatically outperformed the other 408 stocks that make up the S&P 500.
The Big Tech portion of the index is up 20.5% so far this year.
Meanwhile, the other 408 stocks in the index are in negative territory.
The data prove an important point for investors this year: From a performance standpoint in 2020, there’s tech and then there’s everything else.
Just as importantly, that doesn’t look likely to change anytime soon.
Tech stocks showed off stellar performance heading out of the market lows back in March. But compared with the rest of the stocks in the S&P, they’ve actually picked up the pace this summer.
In other words, this trend isn’t fading. It’s accelerating.
And as explosive as the gain opportunity in Big Tech has been this year, it may actually pale in comparison with the opportunity forming in small tech names.
Research from Verdad Capital on asset performance during the two decades of near-zero interest rates in Japan showed that the best performing corner of the market during an environment like the one we’re in now was small stocks.
There are two important takeaways here.
First, don’t underestimate tech stocks. More importantly, don’t under-own them.
And second, it’s likely to be a stock picker’s market in 2020 and 2021 as small, ignored tech names play catch-up with their larger peers.
It’s a challenging year to be an investor, no doubt. But it’s a great time to be a tech investor.
Jonas Elmerraji, CMT