BIGTECH HAS ITS WAY WITH MONDAY’S RALLY
At 1:36 yesterday a strong rally was underway and then something shifted. At around 1:36 Monday, the S&P500 was up 1.57%. From the high on Monday to the close 2 ½ hours later, the S&P500 fell 2.48%. What happened? Well, BIGTECH happened. BIGTECH stocks, which TPA has been telling clients now commands a huge weight in the S&P500, got slammed and they dragged down the entire benchmark.
TPA’s BIGTECH Index is comprised of the top 8 stocks in the NASDAQ 100 by market cap. The BIGTECH Index membership is AAPL, MSFT, AMZN, FB, GOOGL, GOOG, TSLA, and NVDA. As the table below shows, the market cap of these 8 stocks is 29%* of the S&P500 total market cap (*TSLA is not in the S&P500). In the table below, TPA provides the percent decline for the BIGTECH stocks from the high to the close on Monday.
Using the weight in the S&P500 for each stock, TPA calculates the impact of the high to close decline on the S&P500 for all of the BIGTECH. BIGTECH accounted for 1.17% or 47.21% of the S&P500’s 2.48% decline from its high to its close on Monday.
Why is it important that 8 stocks of the 500 stocks in the S&P500 can wreak so much havoc? That answer can be found in the most recent Bank of America (BofA) fund manager survey. The BofA survey queries managers who control of $600 billion in assets. In the most recent BofA survey, 74% said that they considered “long U.S. tech stocks is the most crowded trade.”
As TPA said yesterday, since a small number of stocks can move the S&P500 so easily, the most used benchmark is more an indicator of how BIGTECH is performing rather than the entire index. The index can climb or fall without many of its members participating. If, however, BIGTECH were to come under heavy selling pressure on a regular basis driving down the S&P500, this decline would bring out the sellers in other stocks. As the old adage goes, “selling begets more selling.”