Why tech companies make up a smaller proportion of the S&P 500

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For most tech companies, and tech investors, the world is a slower, less dynamic place than it was before the tech bubble burst in 2000. It’s also a less significant place. At the tech bubble’s peak in 2000, large cap technology companies accounted for 35% of the value of the S&P 500. Today, they account for barely 19% of U.S. market cap.

Market Realist – The graph above shows the industry breakdown for the S&P 500 (SPY). Currently, technology stocks (XLK) make up 19.6% of the index. Financials (XLF) have the second highest weightage at 16.4%. Slower growth rates in the tech sector possibly led to the dip in the weightage. This is because the tech sector doesn’t appeal to investors like it did during the tech bubble.

The world’s (QWLD) gross domestic product (or GDP) growth rate for 2013 was a little above 3.5%—compared to nearly 5% during the tech bubble. Slower GDP growth rates usually translate to slower growth rates for industries as well. The tech sector isn’t an exception.

Also, after many years of stellar growth in companies like Microsoft (MSFT), it’s difficult to sustain the same growth rates. This is similar to developed markets.

In the next part in this series, we’ll discuss what happened to the industry in more detail.

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