Is US Market Concentration a Concern?

Over the past decade, the weight of the top 10 stocks in the S&P 500 has nearly doubled.

Source: JPMorgan Guide to the Markets

It’s nearly impossible for the market to be up or down without these big stocks (Apple, Amazon, Google, etc.) going in the same direction. This is not a first – in the 70s, over 40% of the market was dominated by the top 10 stocks, and even more by the “nifty fifty.” While this does introduce some risks if these companies were to be broken up or face increased competition, in general, I don’t view it as a significant concern for three main reasons -

1)      These companies are far more diversified than the conglomerates of the past. For example, Amazon started as an online merchant and now has massive divisions providing business solutions (AWS), grocery (Whole Foods), and video production (Prime Video).

2)      Earnings have kept up with share price. It would be a concern if the stock price was the only thing growing, but these companies are generating massive earnings for shareholders.

3)      The US has less concentration than many other world markets. The trend of consolidation is happening around the world. While 34% of the S&P 500 is made up of the top 10 companies, it is one of the lowest of all developed economies.

Source: Ben Carlson

An overconcentration in a few large stocks does increase some key risks – such as regulatory breakups and sector concentration. However, investors can mitigate some of these risks by regularly reviewing and rebalancing their portfolios, ensuring proper diversification across sectors and asset classes.

Happy Planning,

Alex

This blog post is not advice. Please read disclaimers.