Tech Sector Pulls Down on Market!

The technology sector has had a rough week to say the least. The Nasdaq (Technology market index) is down about 3.86% from its weekly high 5 days ago. Some of the leaders pulling this down include companies like Google (-10%), Meta (-7%), and companies like Apple, Nvidia and Tesla not helping either, all checking in at about -4% over the last five days. Amazon was right there with them, until a big earnings beat Thursday after the market closed. Now, these are all very strong companies with many good days ahead of them, however, we are seeing a bigger problem in my opinion.

It's one thing for these stocks to weigh down the Nasdaq, but the bigger issue is that those companies make up seven of the S&P 500’s top eight holdings (Google has two of the spots with different share classes). The other company on the list that has remained flat is Microsoft. You might be thinking, what is the big deal? There are 492 other companies in the S&P 500. Well, these eight companies currently make up about 27% of the entire S&P 500. The S&P 500 is no longer just a large cap index, but a tech index.

Now is this surprising? I mean, after all, the USAs biggest companies are these giant tech companies, and it is a USA large cap index. If you were to search for what percentage of the S&P 500 was from the technology sector, you would probably find an answer of about 27.5%, however, that does not include companies like Google, Meta, and Netflix, as they are considered communication services. It also does not include companies like Amazon, Tesla, or Airbnb, as those are considered Consumer Discretionary. Most of the S&P 500 could probably be argued as tech stocks. There is a phrase out there of “all companies are now tech companies” because you must embrace technology to succeed in business today.

Is there a way to possibly lower our technology exposure going forward while maintaining my large cap exposure? And should we lower our technology exposure going forward, after all, the tech sector is what has innovated the United States into the most powerful economy in the world. Well, I will answer the first question with an easy yes. And the easiest way is an equal weight S&P 500 fund. These funds invest in all 500 companies with the same percentage of weight. The second question has a little more nuance and depends on your risk tolerance and time horizon. If you want to learn more about how time horizon and risk tolerance can affect your investments, sign up for my upcoming webinar “401K Strategy Series: Part One the Investments”. If you like market commentary like this use this link to sign up for our email list and receive a free eBook. Thanks for reading.