And They're Off - The Market Race of 2020

It was an unseasonably hot and humid day in Elmont, NY on June 9, 1973.  Not exactly the kind of weather that horses like to run in.  Yet on that sweltering Belmont Park afternoon in front 69,000 plus spectators, Secretariat delivered one of the most iconic moments in American sports history.  Facing a field of only five horses (because he was so heavily favored to win), “Big Red” as his owner affectionately called him, won by 31 lengths, the largest margin of victory in history and his winning time of 2 minutes and 24 seconds still stands as the American record for a mile and a half on dirt today.  So memorable that many people, horse racing fans or not, that were alive to see it happen back then, can still tell you where they were that day.

While the last six months of stock market movement isn’t a “moment” in time we can all point to, it has most definitely been momentous for investors and non-investors alike.  The S&P 500 went from a record high in February to down 34% in March.  A mere 163 days later, we once again saw new record highs on September 2nd.  All the while, we were meandering our way through quarantines and stay-at-home orders, adapting to more restrictions and adopting new tools on our devices to communicate, connect, entertain, work and live through these unique and difficult circumstances. As evidence, according to a DOMO study on data in 2020, nearly $240,000 worth of transactions per minute occur on Venmo, an estimated $1 million is spent per minute on e-commerce and some 260,000 users on Zoom/Teams host meetings each minute due to our work-from-home/stay-at-home environments.

Technology has clearly played an essential and very significant role during our “new normal” these several months.  So, what does that mean for investors?  History suggests the stock market is notorious for overreacting whether to upside or downside and that same dynamic still reigns today when looking at technology stocks.  The Information Technology Sector of the S&P 500 aided by this pandemic has raced to the front of the pack and is now valued at over $11 trillion. In fact, the gap between the broad stock market performance and tech stocks so far this year is Secretariat worthy, with tech outperforming the S&P 500 index by over 22%! Just as this Saturday’s Preakness race completes a very unusual triple crown in 2020, the outsized gains of technology stocks that have led the broad stock market’s incredible and historic recovery feel unusual too.

During this pandemic, the S&P 500 has become more top heavy than ever before. On September 11, 2020 according to Goldman Sachs US Weekly Kickstart, “The five largest stocks in the S&P 500 known as FAAMG – FB (Facebook), AMZN (, AAPL (Apple), MSFT (Microsoft Corp), GOOGL (Alphabet)– have returned 42% YTD, compared with -3% for the remaining 495 S&P 500 constituents. Yes, you read that correctly.  Nearly all of the companies in the broad stock market index are actually still underwater in 2020.  As a result, the five stocks driving the performance of the 500 account for 23% of the index’s market capitalization, the highest index concentration on record.  Even in the “Tech Bubble” of late 90’s the big 5 then, made up of Microsoft, Cisco Systems, Intel, Oracle and Lucent, only reached a S&P 500 weight of 15.8% of total market capitalization. 


So, can this dynamic in the stock market continue?  Unlike Secretariat that just kept going and going that sweltering summer day, history suggests technology stocks (especially “the five” FAAMG) will face major stamina challenges sooner than later.  Whether you believe the FAAMG stocks have enough fuel in the tank to keep going or not, what’s important as an investor is that you stay in the race. The good news is that you don’t need a Secretariat.  In fact, that’s way too much pressure and a recipe for failure down the home stretch.  Investing success, rather, requires a diverse field of quality horses to spread around your risk.  At Unified Trust, we do not manage your investments on short-term trends or market exuberance. We follow a disciplined process, investing in high quality, excellent and sustainable growth investments that have experience running in all conditions, so you can stay focused on your goals, as we remain committed to managing the race.

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