Large Caps are the Life of the Equities Party Right Now

The champagne seems to be flowing in perpetuity when it comes to large cap equities right now, particularly tech companies that are using innovation to facilitate communications amid the coronavirus pandemic. So while large caps are the life of the party in equities right now, how long will it last?

The S&P 500, which tracks the largest stocks, appears to be shaking off the effects of the pandemic sell-offs nicely. However, not all stocks are created equal and thus, not shrugging off the coronavirus effects as easily.

“After a steep, months-long climb, the index is up 0.8% on the year and at its highest level since Feb. 21,” a Reuters report noted. “Yet for every stock that has advanced on the S&P 500 this year, 1.7 have declined, according to Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.”

Once again, tech stocks have come to the forefront as the safe haven option given that social distancing measures require the use of tech as the medium for human interaction.

“That is partially because investors have gravitated to a small group of tech-related stocks they believe have the best chance of delivering steady profits in a climate fraught with uncertainty over the coronavirus pandemic and its economic fallout,” the report noted.

This has been a boon for FAANG names like the vaunted Amazon and Apple, which are proving its mettle amid March’s market meltdown.

“The five most valuable S&P 500 companies – Apple Inc, Microsoft Corp, Inc, Alphabet Inc and Facebook Inc – account for some 23% of the index’s market capitalization, the highest level on record, according to Goldman Sachs,” the report added.

“It’s hard to imagine the index going up if you lose that leadership,” said Robert Phipps, director at Per Stirling in Austin, Texas. “Most of the market is really not participating here.”

^SPX Chart

^SPX data by YCharts

Large Cap ETF Exposure

An indicator of how well large cap equities will fare moving forward is obviously how well the SPDR S&P 500 ETF Trust (SPY) performs. But, another way to get large cap exposure is via a quality-focused strategy like the FlexShares US Quality Large Cap Index Fund (QLC).

QLC seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Quality Large Cap IndexSM. The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to quality, value, and momentum factors relative to a universe of publicly-traded U.S. large-capitalization equity securities.

For more market trends, visit ETF Trends.