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Chart of the week

Tech powered the S&P 500 to a new high. What’s next?

Stocks’ astounding rally has been fueled by the tech sector. Our chart looks at tech’s concentration in the S&P 500 and what it means for investors.

August 21, 2020 | 2 minute read

S&P 500 and S&P 500 Equal Weight Index returns (indexed to 100)

Source: S&P Dow Jones Indices, as of August 20, 2020.

  • U.S. stocks have climbed approximately 55% off their late-March lows, bringing the S&P 500 up more than 5% YTD.1 The rally has been spurred on at various points by a mix of massive fiscal and monetary stimulus, positive economic surprises, vaccine-related optimism and improvements in high frequency indicators.
  • The technology sector’s growing prominence within the S&P 500 has also played a major role in the recovery. Information technology stocks account for approximately 30% of the S&P 500 Index today compared to about 18% in 2009.1 The largest five tech companies – also the largest companies in the S&P 500 – have seen their stock prices rise approximately 40% this year compared to negative returns for the other stocks in the index.1
  • The chart highlights this dispersion. It shows YTD total returns for the S&P 500 Index as well as the S&P 500 Equal Weight Index, which reduces the return impact from the largest names in the index (many of which are tech companies).2 Buoyed by the tech sector, the S&P 500 Index experienced a shallower decline and stronger recovery than that of the equal-weight index.
  • Tech stocks, of course, could continue their astounding rally through the rest of the year. Given technology’s heightened concentration within the S&P 500 and the regulatory uncertainty surrounding the results of the upcoming U.S. election, however, now may be a good time for investors to review and consider lowering some of the inherent concentration risks within their portfolios.

  • Bloomberg Finance, L.P., as of August 20, 2020. The five largest tech companies are Alphabet, Amazon, Apple, Facebook and Microsoft.

  • S&P Dow Jones Indices, https://bit.ly/2QaYNXc.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

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