This Top-Heavy Stock Market Isn’t Anything New

Market Concentration

The stock market is dominated by a short list of tech titans.

The market isn’t representative of the whole economy, but the might of these companies has intertwined their performance with the broader health of corporate America. So far in 2024, the so-called “Magnificent Seven” – Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), NVIDIA (NVDA), Tesla (TSLA), and Meta (META) — have driven more than 40% of the S&P 500’s total performance.

In other words, the U.S. stock market is quite top heavy, relying more on the performance of a few large companies than hundreds of smaller ones.

Lessons From History

Major indexes have recently reached all-time highs at least in part thanks to the strength of these companies. But some investors see this extreme concentration as risky. After all, the pendulum can also swing the other way, especially given the heavy reliance on the technology sector.

But the situation isn’t unprecedented. In the late 1960s, a similar, albeit larger, group of stocks called the “Nifty Fifty” was the driving force behind a bull market. And the tech boom in the late 1990s was largely powered by just four companies — Microsoft, Cisco (CSCO), Oracle (ORCL), and Intel (INTC).

Concentration can be risky, but it can also boost performance as it has in these examples.

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