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The Tell: Tesla drives up S&P 500’s disruptive tech exposure as the index rides to record highs in October

Tesla is driving up the S&P 500 index’s exposure to disruptive technology, with Big Tech helping to lift the U.S. stock-market benchmark to new peaks this month.

The S&P 500’s technology sector plus Google parent Alphabet, Facebook, Amazon.com and Tesla add up to 40% of the market-capitalization-weighted index, according to a DataTrek Research note Wednesday. “No other broad market index around the world has a 24 percent weight to its top 6 names,” which also include Apple
AAPL,
-0.11%

and Microsoft
MSFT,
+4.50%
,
the note shows. 

“We’ve halfway joked since starting DataTrek that ‘Tech’ would eventually be 50 percent of the S&P 500 but thought that was maybe a 2030 event,” said Nicholas Colas, co-founder of DataTrek, in the note. “The way things are going, it will come long before that.”

Tesla’s market value rose to more than $1 trillion this week as shares of the electric-vehicle company rallied to a record high after Hertz Global Holdings announced plans to order its cars. Tesla, co-founded by its chief executive officer Elon Musk, joined the S&P 500 in December

The S&P 500
SPX,
-0.26%

closed at another new peak Tuesday and was trading about 0.1% higher Wednesday afternoon, according to FactSet data. Shares of Tesla
TSLA,
+1.77%

were up almost 2% in afternoon trading, bringing the electric-car company’s gains to around 34% in October and about 47% so far this year, the data show, at last check.

“Tesla’s rally is making the S&P 500 even more of a concentrated bet on disruptive technology,” Colas wrote, pegging it at 2.1% of the index. Tesla is “now solidly in ‘must watch’ territory along with the rest of U.S. Big Tech for its potential impact on day to day moves in the S&P 500.” 

See: Microsoft earnings top $20 billion in a quarter for first time, stock heads toward record high

Information technology
SP500.45,
+0.15%
,
communication services and consumer discretionary were the only sectors in the S&P 500 trading up Wednesday afternoon, according to FactSet data. Tesla and Amazon are part of the index’s consumer discretionary sector
SP500.25,
+0.44%
,
while Google and Facebook
FB,
-0.82%

fall within communication services in the S&P 500, the DataTrek note shows.

The S&P 500 consumer discretionary sector
XLY,
+0.35%

can longer be used as a proxy for U.S. consumer spending, according to DataTrek.

“That’s because Amazon
AMZN,
+0.74%

and Tesla are 20 percent and 19 percent of the index each, or 39 percent together,” Colas wrote. “The names you associate with this group, like Home Depot (9 percent weight) and McDonald’s (4 pct), don’t have much influence.”

While the S&P 500’s heavy exposure Big Tech puts it at risk of a “sizeable correction,” DataTrek said “we’d far rather own the S&P 500 than Europe or Japan or even China for the long term, simply because you need to own as much disruptive technology as you can bear to earn a decent return on investment capital.”

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