Throughout the AI-driven rally, the market has increasingly concentrated its risk into the top players – Big Tech names such as Nvidia (NVDA), Meta Platforms (META), Microsoft (MSFT) and Tesla (TSLA).
Following this earnings season surge higher, the top 10 holdings in the S&P 500 Index now account for a staggering 41% of the total weighting:
Following the latest surge in tech stocks, the top 10 companies in the S&P 500 now account for over 40% of the index’s weight. (Source: The Kobeissi Letter)
Inverting that idea, 60% of the S&P 500’s market weighting is borne by 490 companies.
The level of acute market concentration has doubled since 2016. And it exceeds historic levels by a large measure.
During the most intense period of concentration at the peak of the dot-com boom, the top 10 stocks accounted for only 30% of the total market index weight.
In the past, when market leaders during periods of high concentration have missed Wall Street expectations, announced lower earnings (heaven forbid) or stalled out for whatever reason, the market hit an “air pocket” and dropped, to the shock of many unsuspecting investors who have come to believe that the indexes always go up.
At the same time, a rotation of capital into the other 490 stocks of the S&P 500 creates less headline-grabbing gains, but is meaningful for your portfolio all the same.
Fortunately, you don’t have to be at the mercy of markets weighted by market cap. To learn about a less volatile way to capture the market’s returns without concentration risk, become a member of Grey Swan Pro — details here.
~ Addison
P.S. It doesn’t matter how smart you are or how much money you make in the stock market if you give all your gains to Uncle Sam. Last Friday at 2 p.m. EST/11 a.m. PST, we hosted Nick and friends from Prime Corporate Services for a tax webinar to help you be confident you’re getting all the write-offs that properly structured individual investors are entitled to.
We’ve arranged for a replay here. You’ll be surprised at how much you may be leaving on the table.
As always, if you have any questions for us, send them to Feedback@GreySwanFraternity.com.
