Tesla drives up S&P 500’s disruptive tech publicity because the index rides to document highs in October
Tesla is increasing the S&P 500 index’s exposure to disruptive technology, with Big Tech helping to push the US stock market benchmark to new highs this month.
The technology sector of the S&P 500 as well as the Google parent Alphabet, Facebook, Amazon.com and Tesla account for up to 40% of the market capitalization weighted index, according to a statement from DataTrek Research on Wednesday. “No other broad market index around the world has a weight of 24 percent in its top 6 names,” which also include Apple AAPL, -0.14% and Microsoft MSFT, +4.48%.,
the note shows.
“Since the launch of DataTrek, we’ve been halfway joking that ‘tech’ would eventually make up 50 percent of the S&P 500, but we thought that might be an event in 2030,” said Nicholas Colas, co-founder of DataTrek, on the note. “The way things are going, it will come long before that.”
Tesla’s market value surged to more than $ 1 trillion this week as the electric vehicle maker’s shares rose to record highs after Hertz Global Holdings announced plans to order its cars. Tesla, co-founded by its CEO Elon Musk, joined the S&P 500 in December.
The S&P 500 SPX closed another new high at -0.22% on Tuesday and traded about 0.1% higher on Wednesday afternoon, according to FactSet data. Tesla TSLA’s shares, +1.73%, rose nearly 2% in afternoon trading, bringing the electric-car company’s gains to around 34% in October and around 47% this year this year, the data shows.
“Tesla’s rally makes the S&P 500 even more of a focused bet on disruptive technologies,” wrote Colas, setting it at 2.1% of the index. Tesla is “now solidly in ‘must-watch’ territory, along with the rest of the US big tech because of its potential impact on daily movements in the S&P 500”.
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Information technology SP500.45, + 0.38%,
Communications services and consumer discretionary were the only sectors in the S&P 500 to rise on Wednesday afternoon, according to FactSet data. Tesla and Amazon are part of the consumer discretionary sector of the index SP500.25, +0.68%,
while Google and Facebook FB fall under communication services in the S&P 500 -0.76%, the DataTrek note shows.
The S&P 500 Consumer Discretionary XLY, + 0.39%, can be used as a proxy for US consumer spending longer, according to DataTrek.
“That’s because Amazon AMZN, +0.78% and Tesla make up 20 percent and 19 percent of the index, respectively, or 39 percent combined,” Colas wrote. “The names you associate with this group, like Home Depot (9 percent by weight) and McDonald’s (4 percent), don’t have much of an impact.”
While the strong commitment of the S&P 500 Big Tech carries the risk of a “significant correction,” DataTrek said, “We’d rather own the S&P 500 than Europe, Japan or even China in the long run, simply because you have to own a lot of disruptive technology that You can endure to get a decent return on investment. “