After FAANG trade fizzles, Apple and Microsoft dominate U.S. markets

Apparently, the FAANG era is over. Only two stocks dominate the U.S. market. 

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It is a well-known fact that Apple Inc. AAPL has experienced an increase of approximately 0.30% in its weight, while Microsoft Corp. AAPL has experienced a decrease of approximately 0.75%; a green up-pointing triangle. Among the S&P 500 stocks, the green up-pointing triangle has increased by 1.12% and has reached 13.3% for the first time ever, as other large technology stocks have been losing their influence. Strategas Securities' data going back to 1990 shows that.

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As Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, pointed out to the financial press, it has been more than 40 years since two stocks made up a larger share of the benchmark, namely International Business Machines Corp. IBM -0.40% decline; red down-pointing triangle and AT&T in 1978. 

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It has been well known that for the past decade, investors have piled into shares of Facebook parent Meta Platforms Inc., Amazon.com Inc., Apple, Netflix Inc., and Alphabet Inc., all of which are owned by Alphabet. GOOG 0.41% increase; green up pointing triangle With the robust gains that have made the stocks over the years, bets on the growth of these stocks accelerated, and so the FAANG trade gained so much popularity that it became a household name.

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There was a significant rise in their share prices and as a result, their concentration in the S&P 500 increased. At its peak in August 2020, the group accounted for about a quarter of the index. However, despite the fact that the index has since dropped to 21%, some investors still feel that the index has been top-heavy, and if a few stocks pull back significantly, the market could fall as a whole.

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As inflation fears began to bubble and the Federal Reserve started to raise interest rates, the allure of some growth stocks began to dim once the fear of inflation began to bubble and the Fed started raising interest rates. 

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The companies have also faced company-specific challenges, such as the effects of competition and privacy restrictions on Meta, for instance, and Netflix, for example, is struggling to retain subscribers and is grappling with content costs that have been out of control.

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The stocks have gained 23% and 14% respectively since last year when they suffered steep losses, according to Todd Sohn, an ETF strategist at Strategas.

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According to Mr. Sohn, it has been phenomenal. "There is more comfort with the way Apple and Microsoft are viewed versus buying any other tech company."

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Amid hopes that the Fed is nearing the end of its campaign to raise interest rates, investors have piled into tech stocks to hide from the banking crisis. Since the beginning of the year, the Nasdaq Composite has gained 13%. The S&P 500 has given up nearly all of its early-year gains and is up 0.8%.

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Investors should actively pick stocks rather than simply buy funds linked to an index, says Lori Van Dusen of LVW Advisors in Rochester, New York, given the massive weighting of tech companies during the dot-com bubble. 

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There's a lot of concentration in the index now. It's like making a bet on what's going to happen and that's usually a bad bet," she said. "That's just not how you make money."