• Ssince that Mar. 23 low, the S&P 500 index has surged more than 50%.
  • Five megacap tech stocks now account for more than one-fifth of the total market cap of the S&P 500
  • Some analysts think tech is due for pullback


The S&P 500 index set a new record for a closing high Tuesday, rising 7.78 points to 3,389.78, slightly above the previous closing high of 3,386.15 set on Feb. 19.

The index also set a new intra-day high of 3,395.06 during Tuesday’s session.

The Nasdaq Composite index also reached a record high Tuesday, rising 0.73% to close at 11,210.84.

From that Feb. 19 high to the recent low of Mar. 23 — only a little over a month in the shortest bear market in history — the index plunged by 33.9%, as fears over the emergent coronavirus swirled across markets.

However, since that Mar. 23 low, the S&P 500 index has surged 51.5%.

“There has been a lot of good news seemingly validating [this move higher],” Andrew Slimmon, managing director at Morgan Stanley Investment Management, told CNBC. Slimmon added that economic data has recently come in strong while most corporate earnings have topped analyst expectations.

“But I would argue the market here is very vulnerable to some type of bad news ... You look at the type of stocks that have worked, and they’re the higher-risk, higher beta plays,” Slimmon cautioned.

“Equity markets are reflecting the massive monetary and fiscal stimulus that has been injected over the past four months,” said Shannon Saccocia, chief investment officer at Boston Private. “Couple that with a more robust economic recovery than what was expected at the depths of the crisis, and interest rates once again at zero, and the rationale to diversify away from risk assets is hard to pinpoint.”

But some analysts were perplexed by the rally amid a fragile economy.

Jim Denholm, CEO of IronBridge Private Wealth, an investment advisory firm based in Austin, Texas, tweeted: “[The S&P 500 index] is up over 50% from the lows. Yes, the economy is a mess. Yes, there is an election soon. Yes, the [Federal Reserve] is propping [the market] up. No, the market doesn’t care if you’re bearish and think it doesn’t make any sense. Trends matter.”

Indeed, the stock rally has been uneven, largely driven by the large-cap tech sector – that is, companies that provide products and services in great demand during the lockdown.

Just five large-cap tech stocks – Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Facebook (FB) and Google parent Alphabet (GOOG) – have been among the most responsible for the S&P 500 index’s rally this year.

These five companies now account for more than one-fifth of the total market cap of the S&P 500. By sector, tech has jumped 12% over that period, followed by consumer discretionary (up 10%).

On the other side of the ledger, banks have plunged 28%, while energy has tumbled 31%.

While some analysts think that large-cap tech stocks are due for a pullback, Marc Chaikin, founder of Chaikin Analytics, a quantitative investment research firm based in Philadelphia, said he thinks these stocks will continue to lead the market higher “because that's where the cash flow is in this work-at-home and shop-at-home economy.”

Moreover, Chaikin does not think a heavy concentration in big tech issues poses a risk to investors.

“[That’s] because these [companies] are the innovators and beneficiaries of the new normal,” he told International Business Times. “As we move away from manufacturing toward remote services and transacting these become the utilities and toll collectors of the 2020s.”

For now, investors are counting on more stimulus packages from Washington to keep the economy going.

“The U.S. fiscal stimulus is absolutely critical to keeping market momentum positive,” said Nicholas Brooks, head of economic and investment research at Intermediate Capital Group. “Markets are assuming that ultimately Congress will come through with a package, and that there’s a lot of brinkmanship going on.”