{"id":5419,"date":"2015-11-30T14:17:15","date_gmt":"2015-11-30T14:17:15","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=5419"},"modified":"2015-11-30T14:17:15","modified_gmt":"2015-11-30T14:17:15","slug":"sp-500-weekly-earnings-update-sp-500s-tech-and-financial-concentration","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=5419","title":{"rendered":"SP 500 Weekly Earnings Update: SP 500’s Tech and Financial Concentration"},"content":{"rendered":"

Here is our update on the SP 500’s “market cap vs earnings weight” of the 10 SP 500 sectors: FC – marketcapvsearningswt<\/a><\/p>\n

The story the data is telling hasn’t changed in a while and remains the primary reason I remain sanguine about the prospects for forward returns: the two largest sector concentrations in the SP 500, i.e. Financial’s and Technology, had their respective bear market’s from 2000 through 2008, and hence, for at least 40% of the SP 500, I do think that forward returns for two sectors, if not “1990’s like” at least aren’t nearly as probable to be as dire as we saw the last decade.<\/p>\n

It is interesting to me that not one CNBC, Fox or Bloomie commentator has ever raised Tech and Financial concentration issue with Jack Bogle: with the Technology and Financial concentration, could the SP 500 index be fundamentally flawed from a benchmark perspective ?<\/p>\n

It is for this reason, I am slowly selling the QQQ and replacing it with Direxion’s QQQE or equal-weighted QQQ. The QQQE reduces the Apple weight of 15% found in the QQQ’s to an equal-weighted 1%, which given Apple’s out-performance (and continued wild optimism by investors) the last 15 years, makes more sense to me (and hopefully to clients).<\/p>\n

It is because the Tech and Financial’s concentration and last decade’s bear markets, that I continue to be optimistic on the SP 500 in 16, expecting +10% next year, and it is because of Apple’s weight in the QQQ that a slow shift is occurring from holding the QQQ to the QQQE.<\/p>\n

If readers are wondering if Technology and the SP 500 can do well if Apple stagnates, given its 4% market cap and 6% earnings weight within the SP 500, look no further than 2013, when the SP 500 returned +32% and Apple was up single digits on the calendar year.<\/p>\n

Sentiment around SP 500 returns continues to be pretty dire for 2016: Brian Belski went negative<\/a> last week. Goldman Sachs now expects flat returns in 2016. Not one person that I know can be called “table-pounding bullish” about SP 500 returns in 2016. (No one want to look the fool, which I occasionally excel at, so I’ll take the opposite side of the trade.)<\/p>\n

Remember too, in 2013, Chairman Ben was looking at tightening Fed policy and raising rates: could the SP 500 rally smartly in the face of fed funds edging higher ?<\/p>\n

I continue to think 2016 will be a good year for SP 500 returns, but it’s a lonely stance right now, and always subject to change.<\/p>\n

SP 500 earnings data – By the Numbers:\u00a0<\/strong><\/em><\/p>\n