The Amazon Effect on the Stock Market
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This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm Anne-Marie Fertoli in New York. Tech giant Amazon has driven more than a quarter of the S&P 500's gains in 2018. And it's in the running to become the first U.S. company with a trillion-dollar valuation. But Amazon's gains have some investors worried about other sectors of the economy, like manufacturing and oil production. Joining me now in our studio is Wall Street Journal reporter Akani Ohtani. Akani, first, can you start by breaking down just how well Amazon has been doing lately? I mean, it's responsible for a huge chunk of the S&P's gains this year.
Yeah, I have to say I was surprised when I saw the numbers and how they broke down. So far this year, Amazon has accounted for about 27% of the S&P 500's gain.
How much of the S&P 500's 2018 gains did Amazon contribute?
S&P 500 is up about 1%. And then we have Microsoft, which is responsible for about 13% of the total gains, and Netflix responsible for about 8%. So you have three big tech sort of focused stocks, and they powered almost half of the entire stock market's gains this year.
And that's despite the recent volatility we saw. They're still seeing pretty incredible gains.
Yeah. I mean, most of these stocks are vastly outperforming the rest of the S&P 500. Amazon, Netflix, and Microsoft were all up double-digit percentages last year. And I think a lot of people thought they would take a bit of a cooler in 2018. That's pretty normal for things that have really outperformed to sort of take a breather. But they're all outperforming the S&P 500 this year. So they've really continued this streak of tech outperforming.
How unusual is it for a sector to be at the top like this for so long?
Well, I mean, it's not entirely out of the ordinary. We saw Apple very much playing this role in 2015, 2016. And, you know, just as it did back then, it's sort of renewed this question of is it healthy or is it normal for one sector or even just three stock to power so much of the broad stock market's gains? And I think one thing that people have brought up as being potentially concerning about this situation is that the economy is actually in a pretty good shape right now. I mean, people are saying the global economy is on pace to accelerate again. The U.S. economy looks pretty solid. Corporate earnings look good. And so you would expect the gains to be spread out across all industries, particularly things whose businesses tend to pick up as the economy improves.
So that includes things like industrial firms and manufacturing firms and oil production firms. But those firms have actually lagged behind. And so a couple of investors I spoke to were saying, well, maybe that means people aren't actually as confident as you would hope for about the prospects of future growth.
As you write in your piece, investors are concerned about the tech sector's dominance. But this has happened before. Have we seen their worst fears play out?
We have to a certain degree. So even just last year, technology was, again, the best performing sector in the S&P 500. We saw it finish the year up about 37%, and that's nearly double of what the S&P 500 gained over the course of 2017. And we did see, because of tech's dominance, there were times when there was a broad sell-off in technology stocks. People were selling everything from Apple to Microsoft to Facebook to biotech firms. And that had a huge drag on the overall direction of the stock market. There were a couple of really choppy days for tech in particular last summer.
Which tech stocks besides Amazon have driven market returns this year?
And so I think that's the danger sometimes that people are afraid of, is if one sector is really dominating the stock market and it really carries a disproportionate pull over the direction of the stock market, that if it does stop rising, that the overall market will also take a turn for the worse.
I've been speaking with Wall Street Journal reporter Akani Otani, and you're listening to Your Money Matters from The Wall Street Journal. Welcome back. Akani, we've been talking about how investors are concerned about the tech sector's success and how that's impacting other sectors, especially energy.
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