Mega cap tech giants were responsible for a sizeable portion of the S&P 500’s gains in 2021, but will the pattern hold this year?
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As the table below illustrates, there was only one year, 2020, in which the top five had a larger impact on the overall market's return than in 2021, an astounding 62% versus 31%. Those names — AAPL, AMZN, MSFT, NVDA, and— were among the largest Covid beneficiaries, whose earnings and growth accelerated well beyond Wall Street expectations.
In addition, with interest rates as low as they have been, the fixed income alternative to equities is much less compelling, so billions pouring into S&P index funds naturally raises the value of its largest constituents. When the"Trillion-Dollar Club," including AAPL, MSFT, AMZN, TSLA, GOOGL, and almost FB, have strong years, investors will have difficulty beating the averages.
Nvidia is the sole equity that appeared in both the top five and top fifteen absolute price winners in the S&P last year, suggesting that what makes it difficult to beat the index isn't the lack of a cohort of outperformers, but the power of return plus weight.
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