MorningWord 11/7/14: A Few Good Ten $QQQ

by Dan November 7, 2014 9:39 am • Commentary

While there is no shortage of stocks at 52 week highs, a handful of stocks are doing most of the heavy lifting in the Nasdaq 100 (QQQ).  AAPL, MSFT, GOOGL, FB and INTC make up about a third of the weight of the entire index.  Those 5 stocks represent $1.7 trillion in market cap,  with AAPL, MSFT, INTC and FB up on average 33% in 2014, and GOOG down 1.6%.

Thinking about it another way, the top 10 holdings make up about 50% of the weight of the QQQ, equaling about $2.4 trillion in market cap.  Only one of the stocks in the 6 to 10 spots is down on the year.  That’s AMZN, which has declined 25%, while GILD is up 42%, CSCO up 12%, AMGN up 40% and CMCSA up 6%.

The top 10 holdings of the QQQ make up $2.4 trillion in market cap, with 8 of the 10 up on the year on average of 29%, while the two decliners are down about 13% on avg.   What’s astonishing is that the market cap of the top 10 holdings, which is heavy tech and biotech, are equal to the market caps of the last 90 components of the index.  I would also add that BABA would be the 4th largest holding in the QQQ, which only reinforces the top heavy natrue of the index and how a few stocks have basically sucked the air out of many.

The Nasdaq 100 (QQQ) is up 17% ytd, outperforming the broader Nasdaq Composite (which has 2500 stocks in it) which is up only 11%.

Lately, we’ve seen a number of big earnings misses from some of the smaller names, indicating the dispersion within the tech sector, and among market caps.  Investors have been using more discretion within the Nasdaq, buying up the winners, but punishing the losers.  For example, so far this week, PCLN, QCOM, Z, and UBNT are examples of some of the prior leaders that have been dumped at the same time that the indices have made new all-time highs.

This dispersion reflects a different stage of this bull market compared to much of the past 2 years.  It’s no longer a rising tide lifts all boats type of situation.  Poor results, high valuation, or a combination of the two is no longer forgiven as easily.  The changing backdrop worth keeping in mind as we survey the landscape of single stocks in the coming months.