Their market caps have swelled by a third in 2020, resulting in them holding a 22% share of the S&P 500. That's the largest concentration of any group of top-five stocks since at least 1980, and up from the peak of 18% during the tech bubble, Goldman Sachs' data shows.
To illustrate what is at stake, Kostin separated the so-called FAAMG stocks' returns this year from the remaining companies on the S&P 500. The chart below shows these mega caps have returned 35% while the S&P 500 has returned 2%. And if these companies are excluded, the remaining 495 constituents would be down by 5% year-to-date.In essence, any major slip-up in the upper ranks of the index could result in huge losses for the broader market.
He is not forecasting a 2000-like implosion of the big five. Of course their valuations are elevated — at 31 times 2021 earnings per share versus 18 times for the rest of the S&P 500. But this premium still falls short of the high watermark left during the tech bubble. And this time around, the top stocks actually have earnings growth and quality balance sheets to show for their performance.
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