📈They Come for the Generals Last*UPDATE*

In the beginning of the week I did a piece on the Top 4 trends for 2023. One of those trends is that the Top 5 technology stocks weighting in the SP500 is at 18% and during the 2002 correction the Top 5 names went from 20% to 5%. Now in 2000-2002 era we had triple digit price to earnings multiples and we do not have those now. We do have significantly higher inflation and over a decade of zero interest rates that has been eradicated. We could argue that the cost of capital and the inflated pricing is going to eat into technology profits more so than in the past. I do not think we can make the argument yet that we see 5% weighting of the top 5 Tech names. Let’s say things are only half as troublesome as 2002.

Right now the percent weighting of the Top 5 tech names in the SP500 is as follows:

AAPL 5.85%

MSFT 5.29%

GOOG/GOOGL 3.1%

AMZN 2.34%

NVDA 1.13%

Total 17.71%

We started the week at over 18% of the SP500

It is clear by looking at the above chart that the majority of the Top 5 are in two names. Those two names make up over 40% of the SP500 technology sector(XLK)

Since March 2022 death cross (50/200 Simple moving average) we have not been able to get above resistance 200 SMA

During 2022 we saw the XLK not only underperform the SP500 but continue to accelerate its underperformance. Note how the disparity between the SP500(green) and the XLK(white) from 4th quarter 2022 to date. The spread is widening.

One of the best examples of the secular shift we are seeing can be seen below. The Nasdaq has outperformed the SP500 for 20 years

Recently we have broken that trend line

Only one other time in history has this happened in the past 30 years 2000-2002

Only one stock remains above to inline with the SP500(green) since 2022. AAPL(white) is still the best performing of the top 5 tech names. Followed by MSFT(purple) underperforming the least (Full legend on the graph)

Whether you agree with the possibility that this may be similar to 2002 is not what is paramount. If you had 18% of an asset and historically it drops during the economic conditions we are now facing you would have to assume that the drop is coming from the larger components of that asset. In other words AAPL and MSFT are on the chopping block. For more context if the SP500 stayed flat, and AAPL and MSFT dropped 20% This would put AAPL at 4.68% of the SP500 and MSFT at 4.23%. AAPL would be $100 and MSFT would be $180. The top 5 technology weighting if everything else remained flat would be 15.48%. This is 3 times the 5% weighting in 2002.

For an understanding of what is going on technically with the SP500 watch the first three minutes of this video.

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Wishing Everyone Massive Success in 2023 🍾