Big Tech Drives US/EM YTD Gains

By datatrekresearch in Blog

With just a week left in Q1 2023, the headline appears to be “Global stocks begin the year by clawing back some of 2022’s outsized losses”. Here is the quarter to date price return data for major regions:

• S&P 500: +3.4 percent year to date
• MSCI Europe: +5.5 pct YTD
• MSCI Japan: +4.9 pct YTD
• MSCI Emerging Markets: +2.0 pct YTD

The reality is that global Big Tech stocks have been responsible for all the YTD gains in both US large caps and MSCI Emerging Markets.

Here is the data for the S&P 500:

• Apple is up 23.3 percent YTD. At an average 2023 S&P 500 weighting of 6.6 percent, this gain is worth 1.55 percentage points of index performance.
• Microsoft is up 17.0 pct YTD. Its average 2023 S&P weighting is 5.92 percent, making its YTD rally worth 1.0 percentage point to the index.
• Alphabet/Google is up 19.5 pct YTD. Its average S&P weight YTD is 3.33 percent. That makes its index performance contribution 0.65 percentage points.
• The combined contribution of Apple, Microsoft, and Alphabet to the S&P 500’s YTD price performance is 3.2 points, 94 percent of the index’s 3.4 percent gain. If we added Nvidia’s 83 percent YTD gain and average 1.1 pct index weighting, the total US Big Tech contribution to the year’s S&P 500 gain would be 4.1 percentage points.
• In other words, the S&P 500 would be down 0.7 percent YTD without the snapback in US large cap Tech from deeply oversold conditions at the end of last year.

And here are the relevant YTD calculations for MSCI Emerging Markets:

• Taiwan Semi is up 24.6 percent YTD and has an average 2023 weighting of 6.21 percent in MSCI EM. That works out to a YTD contribution of 1.53 percentage points to the index.
• Tencent is up 12.8 percent YTD. Its average EM weighting this year is 4.42 percent, making its contribution to EM 0.57 percentage points.
• Add the two together and you get 2.1 percentage points, more than MSCI EM’s 2.0 percentage point gain.

The same concentration of YTD returns in Big Tech stocks does not exist in either Europe or Japan:

• ASML and SAP are the only Tech names in MSCI Europe with a greater than 1 percent weighting. Both are up 19 percent YTD, but their collective impact on the index is just 0.65 percentage points. This represents just 12 percent of MSCI Europe’s YTD gains.
• There are 3 large Tech and Tech-adjacent names in MSCI Japan that have done well enough to sway the index: Sony, Keyence, and Tokyo Electron. Their collective YTD impact on the index is 1.5 points, 31 pct of its YTD gains.

Takeaway: The reasons behind global equity markets’ YTD rally varies by geographic region, with Tech playing either the decisive role or having very little impact at all. The strength this year in European and Japanese equities has not relied on Tech stocks and YTD returns are actually better than both US large caps and EM equities. To our thinking, that is impressive and suggests these rallies are sustainable into Q2. The positive YTD returns in the S&P 500 and MSCI Emerging Markets are built on a much narrower foundation. They will need to either broaden out in Q2 or continue to hope that lower US interest rates and China’s reopening remain persistent investment themes.