Mega-stocks have been flying high and the top two stocks in the Nasdaq 100, Apple and Microsoft, now account for over a quarter of the index. Photograph: Josep Lago/AFP/Getty ImagesThe S&P 500 has bounced recently but the narrowness of the rally continues to concern. Concentrated indices have dramatically outperformed broader counterparts, notes Interactive Brokers’ Steve Sosnick.
The top two stocks in the Nasdaq 100, Apple and Microsoft, account for over a quarter of the index, while the top seven stocks comprise over 50 per cent of its weight. Mega-cap tech stocks have been flying high, resulting in the index rising 20.5 per cent in the first quarter. The NYSE Fang+ index, which is even more concentrated, soared 39 per cent. The broader Nasdaq Composite index usually moves in tandem with the Nasdaq 100, but it has lagged in 2023.
The spread between the two indices is at levels unseen in 30 years, says Sosnick. Similarly, the cap-weighted S&P 500 gained 7 per cent in the first quarter, almost three times more than an equal-weighted version of the index. This level of outperformance is unseen since the end of 1999, notes UBS, just before the dotcom bust. Basically, the broader the index, the poorer the performance. Consequently, the NYSE Composite, which tracks over 2,000 stocks, gained just 1.3 per cent.