In what is a sure sign of the technological age we live in, over half of the stock market’s gains in 2018 came about as a result of significant moves in Amazon and Netflix.
Consumer-discretionary Stocks
Of course, technology has always played a big part int he stock market whether it has been driving growth with innovative new products like the smartphone or enabling more people to invest wisely via algorithmic trading, for example. However, having more than 50 per cent of gains come about due to tech and changes in tech, as has happened in the past few months – primarily with the FAANG set of stocks, which consists of Facebook, Apple, Amazon, Netflix and Google, which have gained 0.19%, 0.16%, ).91% and ).91% and in the case of Google, lost -4.28% (although the parent company gained +0.26% -is something else, especially since all of these stocks are technically classified as consumer-discretionary stocks.
In fact, so dominant are these stocks that the market has noticed a strong correlation between the tech sector and the consumer-discretionary sector and how successful they are. DataTrek Research has found that the tech sector has a 0.86 correlation with the S&P 500 and that’s in June alone! If it was to reach a perfect correlation of 1.0, that would mean that whatever the consumer-discretionary stocks did, the tech sector ones would almost do. This is a prime example of just how much tech is taking over our lives in the U.S and worldwide.
FAANG Group
The fact that the two are so linked shows us that the vast majority of consumer spending now goes on technology in one way or another. So, if you ’re looking to make money on the stock market, it certainly seems that investing in technology, particular the FAANG group and associated stocks, is probably the best thing you can do to make a quick buck. Every single FAANG group company, as well as other big tech companies such as Microsoft, have outperformed the S&P 500 expectations this year, with Amazon alone being up over 50 percent at the half-way point of 2018 and Netflix more than doubling it’s worth in the same time period.
A top portfolio manager at Ritholtz Wealth Management explained that Amazon alone accounts for one-third of the S&P 500s return to date, with Netflix accounting for 21 and Microsoft and Apple combined 27 percent. In effect, this means that only two stocks are responsible for the gains to date in 2018 and just four companies can be attributed to bringing in 80 percent of returns. That is an amazing statistic that shows us just how much these big tech names have come to dominate our lives.
The Takeaway
The takeaway for anyone who’s interested in investing is that a handful of big tech names are driving the market and making huge money for investors. However, when such big gains are made, it pays to be cautious because they might just come falling back down to earth at the moment, and total domination of the market is always a potential warning sign that should be heeded, That being said, it’s hard to go wrong investing in popular tech.
