Is the S&P 500 Index a Diversified Strategy?

Investors often hear talk of the dominance of large cap technology stocks in the market—Facebook, Apple, Amazon, Netflix, and Google—but even the biggest tech fans would admit to being surprised by the following chart.

Michael Batnick, Director of Research at Ritholtz Wealth Management, created a pie chart of the market capitalizations of all the stocks in the S&P 500. It turns out the top 5 tech companies combine to outweigh the bottom 282 companies of the S&P 500 index.

When asked whether he was concerned about another “dot com” type bust in technology, Batnick minimized those fears by noting that today’s rally in tech can be justified by valuations (unlike in 1999). “These five have earned nearly half a trillion dollars over the last five years and are currently trading at 37 times earnings and 5.5 times sales,” he said, "A fraction of the sky-high multiples of the 90."

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