Technology has the largest sway over the fortunes of the overall stock market that it's had since the tech bubble, and that's a concern to some strategists.
The S&P technology sector is close to 23 percent of the market weight of the , the highest percentage since the tech bubble, when the weighting peaked at 34 percent in March 2000, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
But the Street's favorite stocks have outsized clout in the index. For instance, Silverblatt says the FANG names — Facebook, Amazon, Netflix and Google parent Alphabet — equal about 7 percent of the S&P 500. With Apple, they make up about 10.6 percent.
"It's something to look at and it's unusual," Silverblatt said of a few companies with so much weight. He added it begs the question of valuation. He noted they have very high price-earnings ratios. For instance, Amazon, on a trailing 12-months price to GAAP earnings, is at 198 times.
An abrupt sell-off in the Nasdaq on Thursday highlighted the role big-cap tech has played in the market's gains, and raised concerns that the nature of the move was signaling a further sell-off ahead. The heavily tech-weighted Nasdaq has been on a tear, up 4 percent so far this month and 18.6 percent year to date. On Thursday, it lost 0.6 percent, or 40 points, to 6,382, but that was after an early morning rally into record territory and then a dramatic 100-point swing.
"As an investor, you have to be concerned when so many investors are on the same side of the canoe. It's an unusual market. One that appears to be defying gravity, but if there's any indication that things are turning around, there are a lot of weak hands holding tech," said Jack Ablin, CIO of BMO Private Bank.
Some analysts have been warning that the market could pull back this summer, and they point to tech as an overpriced and overcrowded trade. But others see justification in higher tech valuations because those companies can deliver growth when other industries cannot.
"More than half of the professional money managers are pretty nervous about Nasdaq. It's a very crowded trade. My sense is people are in it because they need to be in. The conviction behind these holdings is pretty low, and we could see some increased volatility there," Ablin said.
The Nasdaq composite is very different from the S&P 500, which includes the biggest U.S. companies across 11 major sectors.
Paul Hickey, co-founder of Bespoke, said before Nasdaq's turnaround Thursday, he noted that the four largest stocks in the S&P tech sector — Apple, Alphabet, Microsoft and Facebook — accounted for 48 percent of the S&P technology sector's market cap. Facebook's market cap briefly rose above a half trillion dollars for the first time Thursday, before giving back some gains.
"So, the sector and overall market is becoming a bit top heavy. That's not necessarily a bad thing as long as the other stocks do well too, but it is a bit extreme. To put it another way, the 50 smallest companies in the S&P 500 account for less than 1.5 percent of the index's market cap, while the smallest 200 account for less than 10 percent," he wrote in a note to CNBC. "If the 200 smallest companies in the S&P 500 dropped to zero overnight, we still wouldn't get a 10 percent correction in the S&P 500!"
The FANG stocks have also had very sharp gains this year, versus the S&P 500's 10.6 percent gain. Amazon stock was up 39 percent year to date, as of Thursday's close, but it lost ground in after-hours trading because of an earnings disappointment. Facebook was up 48 percent for the year.
Netflix and Amazon are not part in the S&P tech sector. They are included in the consumer discretionary group, which has the fourth-highest market representation in the S&P 500, at 12.4 percent. Health care and financials are about 14 percent each. Industrials are 10 percent, consumer staples are just under 9 percent, and energy is at 6 percent, according to Silverblatt.
Hickey said while tech is dominant, it's not an issue for the market right now. He said there is strong participation in the market rally. "Breadth has been holding up well, and if it wasn't holding up, that would be a worry but other stocks are doing well," he said. "It's hard to be overly concerned. ... If people want to be skeptical they'll find reasons to be skeptical regardless of what's going on."
But Ablin said he's concerned in the event the market gets turbulent.
"It certainly is a warning sign when you see a sector run the way it does. It becomes an outsized portion of the market. It's just not healthy," he said.