META Meta Platforms Inc

By Chris Dieterich 

Ten big stocks are exerting an unusually large influence on the S&P 500 in 2017, the latest sign that the herd instinct is alive and well on Wall Street.

Those 10 large stocks have powered nearly 53% of the S&P 500's 4.7% advance this year, according to Fundstrat Global Advisors' data through the middle of last week. During an average year, the 10 stocks with the greatest impact typically account for only 45% of the market's price moves, according to analysis of data from AQR Capital Management.

Technology-oriented companies dominate the list: Apple Inc., the world's largest company by market capitalization, is up more than 22% this year through Monday. Social-media company Facebook Inc. has risen nearly 23% while e-commerce powerhouse Amazon.com Inc. has climbed 20%.

Combined, shares of these three companies account for almost one-third of the S&P 500's 2017 advance through this past Wednesday.

The recent strength in tech and internet companies marks a reversal from late last year, when investors piled into banks, industrials and small-cap stocks in the weeks following November's U.S. elections. They bet that Republican control of Congress and the White House would lead to pro-growth policies.

But as investors began to lose confidence that the policies would be enacted quickly, these sectors have trailed the S&P 500 in recent months. Instead of focusing on companies that could outperform during faster economic growth, many investors returned to large-cap favorites with a track record for boosting revenue during slower growth periods.

"If these businesses keep growing, then the stocks are going to keep going," said Doug Foreman, chief investment officer and portfolio manager at Kayne Anderson Rudnick, which owns shares of Netflix Inc., Amazon and Facebook.

Big-cap tech and internet stocks have been popular even though they look pricey based on earnings expectations, which has turned off some investors.

Facebook, for example, trades at a multiple of 24.3 times analysts' earnings expectations over the next year, well above the 17.6 for all tech stocks in the S&P 500, according to FactSet.

But Facebook is also forecast to grow sales in 2017 by 37%, the most of any company in the technology sector, according to analysts at Goldman Sachs Group. Another highflying stock, Netflix, has a forward price/earnings ratio of 109, but analysts expect the video-streaming company's sales to rise 27% and earnings to more than double. Netflix late Monday reported that sales grew 35% in the first quarter from a year earlier.

"All of these stocks are priced to grow and until they stop growing they will support their valuations," said Mr. Foreman.

Some investors say that the popularity of low-cost index-tracking funds that assign greater heft to the market's largest companies helped boost the most widely held stocks. Some $2.1 trillion in assets were directly linked to the S&P 500 at the end of 2015, according to the most recent data available from S&P Dow Jones Indices.

Still, some analysts consider this high concentration in broad-based index funds as a potential vulnerability, since the few large companies that have lifted the market could drag the index lower during the next downdraft.

(END) Dow Jones Newswires

April 17, 2017 19:10 ET (23:10 GMT)

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