Three Things 2023’s Best Stocks Have in Common
The S&P 500 is comprised of (roughly) 500 stocks, and through June 14 it’s up about 15% in 2023. Yet, it would be down this year if not for these 30 companies (Google parent Alphabet is listed twice):
I’m going to use SPY as a proxy, which is the SPDR® S&P 500 ETF. And it’s worth noting, the stocks listed above are not necessarily 2023’s biggest gainers. Rather, they are responsible for most of the growth of the index.
What do the companies have in common?
They are ENORMOUS businesses. Combined, their equity is worth about $18 TRILLION, or 37% of the S&P 500 index, using closing prices from 6/13/2023. In their most recent fiscal years, they generated over $3.8 TRILLION in sales. Enormous. Occasionally, people in the investing world will use the term, “mega cap,” when describing a stock. When you hear that description, think of these companies.
As these businesses go, so goes “the market.”
Most live on the GROWTH side of the value-growth spectrum, and within the technology sector to be more specific. Morningstar categorizes 18 of the 31 as large growth businesses. From a sector perspective, technology and communications services account for 19 of the 31 on this list.
Why does this matter? Growth stocks have trounced value-oriented peers year-to-date. As of 6/13/2023, the large value index is up 3.5%. Large growth stocks are up 26%.
Most were on the list of BIGGEST DETRACTORS last year.
Here is a chart showing the top 15 contributors in 2023. Only Broadcom (AVGO), Eli Lilly (LLY), and Oracle (ORCL) were not on 2022’s list of 15 biggest detractors. And, I doubt anyone has forgotten, but 2022 was a crummy year for stocks. The S&P 500 lost over 18% during the year. And yet, without the worst 15 detractors shown below, the S&P 500 would have only been down about 6%.
So, while many are rightfully pointing out how concentrated 2023’s returns have been, this seems like it is becoming more of the norm for market cap weighted indexes like the S&P 500, and it cuts both ways. The big companies have been getting bigger, which means they will continue to have a heavy influence on the index’s overall returns, both up and down.
Is it a golden age for huge companies? Historically, becoming one of Earth’s largest businesses was a bit of a bad omen. Almost like the dreaded cover of Sports Illustrated curse. Once a certain size, it became hard to deliver sales and earnings growth that would fuel the stock higher. These days, being huge and generating tons of cash may represent the ability to out-invest your peers, building on the competitive barriers that already exist.
Regardless, I’ll leave you with three final reminders:
About 1/3 of the S&P 500 is in just 13 companies. Concentrated indexes will often be driven by a handful of stocks. This should be expected.
You probably don’t own “the market.” If you’re reading this, I think the chances are good that your investment portfolio includes stocks in the U.S., Europe, Asia, and everywhere in between. Big stocks. Small stocks. Diversification means having exposure to areas that are doing well, as well as pockets of the market that may be struggling. Again, this should be expected.
Big moves from small pockets of the market may impact the amount of risk in your portfolio. Unless you’re a speculator, you probably own stocks to help reach long-term goals. It could be a good time to revisit intended allocations and see where markets may have pushed things a little out of bounds.
Interested in talking more? Email me at eric@divviwealth.com or set up time with the Divvi team to continue the conversations.
Source for attribution data is Morningstar Direct.
