Blog Single Post

The Wall Street Journal reported on 4-18-2017 that ten big stocks in the S&P 500 stock index are having an outsized influence on the return of the overall index. Ten stocks are responsible for almost 53% of the 4.7% return in the S&P 500 Index so far this year. In other words, over half of the return of the S&P 500 index has come from only ten stocks! These ten stocks are Apple, Alphabet (the old Google), Microsoft, Amazon, Facebook, Johnson & Johnson, Procter & Gamble, Visa, Oracle and Phillip Morris. This is important for two reasons. One reason is that is shows a herd type of mentality regarding investments. In other words, everyone is chasing after the same few stocks. The second reason that concentrated returns are important is that some of these large stocks have very high price/earnings ratios. For example, Facebook is selling at a price/earnings multiple of 24.3 analysts’ earnings expectations for next year compared with a price/earnings ratio of 17.6 for the S&P 500 index as a whole. This is not something to be overly concerned with, just something to be aware of going forward. In a perfect world, all stocks would participate in an upside move, not just a concentrated few.