This Year's Stock Market Rise Has a Potential Hitch

It hinges on 5 big stocks, which makes investors worried
By John Johnson,  Newser Staff
Posted Dec 21, 2021 11:16 AM CST
As These 5 Go, So Goes This Year's Market
The Apple logo is illuminated at a store in Munich.   (AP Photo/Matthias Schrader, File)

If your 401(k) has done well in 2021, a Goldman Sachs analysis points to five key reasons:

  • Apple
  • Microsoft
  • Nvidia
  • Alphabet (Google)
  • Tesla

These five giant tech stocks account for 51% of the benchmark S&P 500's gain since April, say the Goldman analysts, per Yahoo Finance. And for the whole year, they account for about a third of the 26% increase. As the Wall Street Journal sees it, worried investors have resorted to the practice of relying on a few high-performing companies, but this eggs-in-a-few-baskets approach has obvious risks. "If those companies, for whatever reason, stop performing, there's nothing to support the market," says Peter Cecchini of hedge fund Axonic Capital.

In fact, the stock market's weak performance of late coincides with weak performance of, yes, those five stocks. Last week, shares of the big five fell by more than 4%, fueling a fall of about 2% for the S&P, per the Journal. Both stories note that since 1980, "market breadth" has been this narrow only 11 times. And most of the time, that narrowing has been followed by below-average returns in the S&P over the next year. But not all the assessments are negative. The past year "has been a poster child example of a market that can bend due to narrow breadth but not break as a result of it," Andrew Thrasher of Financial Enhancement Group tells Reuters. (Read more stock market stories.)

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