In my opinion, it remains to be seen whether the market is in the midst of a garden-variety 10% correction or if this is the start of a deeper bear market.
But in my view it does seem like this market is being held aloft by a small handful of large-cap tech stocks: the infamous FAANGs, as in Facebook (FB), Apple (APPL), Amazon (AMZN), Netflix (NFLX) and Google (GOOGL).
Let’s play with the numbers a little.
The S&P 500 cratered in early February but quickly rebounded, recouping about two thirds of its loss as of March 26.
And when the market rolled over again in mid-March on trade fears, it stopped short of hitting new lows, at least as of March 26.
But stripping out tech and telecom stocks, we see a different picture in my opinion.
The S&P ex-Technology and Telecom Services Index fell in lockstep with the S&P 500, but the recovery was less robust.
It recovered a little over half the prior losses. And when stocks dropped again in March, the ex-Tech and Telco fell to new lows.
Now, let me be clear that this is by no means a thorough analysis. This is a superficial first scan, and I plan to dig deeper this week.
Furthermore, the data as presented here doesn’t specifically isolate the impact of the FAANGs.
The S&P 500 ex-Technology and Telecom Services index actually includes one of the FAANGs — high flier Amazon.com (AMZN)— which makes its performance look better than it should.
It also excludes stodgy old telecoms like AT&T (T) and Verizon (VZ), both of which have gotten obliterated this year as interest rates have risen… and which didn’t participate at all in the rally earlier this month.
Excluding telco also makes the ex-tech index look better than it should.
I’ll dig deeper into the data later to build a true S&P 500 ex-FAANGs index, but this initial look would suggest that the this market is indeed narrow, being held aloft by Big Tech.
That’s worrisome, in my opinion, and it makes me believe that more pain could be coming.