The Other 496 S&P Stocks

So much of the market’s gain this year have been powered by Alphabet, Amazon, Apple and Facebook that strategies that don’t contain those stocks have been left behind

By Justin Lahart

An Apple iPhone displays Facebook’s splash screen. Much of the market’s gains this year have been powered by Apple and Facebook, along with Alphabet and Amazon. Photo: karen bleier/Agence France-Presse/Getty Images        

When one third of the S&P 500’s gain comes from four stocks, there aren’t many ways to beat the market without them.

A good year for the stock market would be a lot less exciting if it hadn’t been for the shares of , AMZN 0.12%▲ Apple, Google parent Alphabet and Facebook . FB 0.45%▲ The combined market value of the four companies has increased by more than $500 billion since the start of the year, making them a major force behind the S&P 500’s $1.7 trillion gain.

They’re also why most S&P sectors have struggled against the overall index.

The total return of the S&P is 10.5% this year. Only three of its 11 sectors have done better: technology (home to Apple, Alphabet and Facebook), consumer discretionary (home to Amazon) and health care.

The S&P 500 Growth index, which holds the S&P 500 stocks with the fastest-growing sales and earnings, and the greatest price momentum, has returned 15.1%. Amazon, Apple, Alphabet and Facebook count for nearly a fifth of its weight. The S&P 500 Value index—the yin to growth’s yang—has underperformed.

Of the four behemoths, only Apple has a dividend, and a rather scant one. No surprise, then, that the S&P High Yield Dividend Aristocrats index, which screens for companies that have consistently increased their dividends, has done poorly. The S&P 500 Equal Weight Index (which puts every stock on an equal footing rather than weighting by market size) has over time tended to outperform the S&P 500. But not this year. Midsize and small company shares, in both the growth and value categories, have also underperformed.

So for almost any investors who adhered to any particular style, 2017 probably hasn’t been so good. And unless they loaded up on the four stocks that happened to power the market higher, it hasn’t been much of a year for stock pickers. The plain-vanilla strategy of just buying the S&P 500 has so far been the right one.

But when the stock market is driven by just a handful of stocks, each of which is substantially more expensive on a price-earnings basis than they were at the start of the year, it can be setting itself up for trouble. It might not take much for investors to suddenly pine for all the stocks and styles they have abandoned.

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