Some factual observations about the S&P 500 and technology stocks. Investors assume that an index like the S&P 500 gives broad exposure to “the market.”  The 5 largest positions, 1% of the names, all  technology, are now 22% of  the Index market value. That 1% has accounted for close to half of the S&P 500 market value increase in the past five years. There are now two essential possibilities:

–    The IT companies fulfill analysts’ 5 -year growth forecasts – higher even than the past 5-years’ growth – and easily double their index weight. At a 45% to 60% or higher IT weight, the S&P 500 is then a technology index of record-high valuation multiples.

–    The IT companies don’t fulfill those expectations. The figures in this review quantify a few central competitive, regulatory and financial accounting risks, all of which are impending and any of which can seriously reduce the growth and profit margins of these mega-cap companies. 

Download: The AMAGF IT/Social Media Stocks – Some Factual Observations (September 2020)