S&P 500 Hits Tech-Heavy Milestone Last Seen Amid Dot-Com Bubble

(Bloomberg) -- The high-flying technology sector hit a potentially ominous milestone on Tuesday: It now amounts to more than 25 percent of the S&P 500 Index.

“It's the first time the sector has made up at least a quarter of the S&P since a one-year period that ran from Thanksgiving 1999 through Thanksgiving 2000,” according to analysts at Bespoke Investment Group. “Notably, the weighting only got above 25 percent for the final four months of the dot-com bubble when share prices were going insane.”

This time, however, it's different, according to Bespoke. The forward price-to-earnings ratio for the sector stands at a little over 19, compared with a peak of 60 in March 2000. This implies that valuations in the industry are considerably less stretched than during the dot-com bubble -- and that the sector's hefty share of the benchmark U.S. stock gauge is more justified by the fundamentals.

But still, crossing this threshold “is still nothing to sneeze at,” the analysts said in a note Wednesday.

No other sector has accounted for 25 percent of the S&P 500 over this span. At their zenith during the housing bubble, financials came within a few percentage points of this milestone.

Year to date, the tech sector has outpaced the S&P 500 Index by a substantial margin. And its success isn't largely attributable to heavyweights like Alphabet Inc. or Apple Inc. Rather, gains have been broad-based: The equal-weight tech index is actually outperforming its market-capitalization-configured counterpart.

To contact the reporter on this story: Luke Kawa in New York at lkawa@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Andrew Dunn, Joanna Ossinger

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