Narrow markets are not uncommon to equity investors. They tend to manifest themselves during the best of times, as bull markets lengthen and thematic elements of investing gain popularity. Prior narrow market environments existed in the late 1990s (the historic tech bubble that many remember) and also in 2007, prior to the global financial crisis. The most recent narrow market has been dominated by the headlines of FAANGs — Facebook, Amazon.com, Apple, Netflix and Alphabet, formerly known as Google.
These five business models are disrupting all sorts of industries, and with it, their stock prices have soared. Collectively, as a group, the average return for the Fab Five was nearly 50% for 2017, compared to the S&P 500 index return of 21.8%. The FAANGs now account for more than 10% of the S&P 500 and accounted for 4.3 percentage points of the 21% return in 2017. When Microsoft, another large technology holding in the S&P, is added in (FAANGs-plus), the return contribution goes up to 5.3 percentage points, or a full 24% of the return contribution for the full year.