Stock Market Concentration: The New Wall Street Worry

Bond market liquidity was so 2010s. Nowadays, stock market concentration is the new trendy bugbear of finance. Worries are understandable. After all, it’s hard not to feel at least a little bit uneasy about the phenomenon, which is remarkable across three dimensions: size (big is better than small); industry (tech über alles) and geography (America First). There are a multitude of ways to show these interlocking facets of concentration.

The most popular one is simply to calculate how much of the S&P 500 index the top 10 members account for. At the moment that stands at a modern-day record of 37.3 per cent. However, for Alphaville the most arresting stat — via S&P Dow Jones Indices’ Howard Silverblatt — is that just 26 stocks now account for half the entire value of the S&P 500 index. That’s down from an already-low 36 at the end of 2023, and is the lowest number since at least 1980. In fact, it is probably the lowest ever since the benchmark’s creation in 1957, though we’ve struggled to find historical data on its composition going back that far. That is astonishing, and potentially has a lot of implications. Apollo’s chief economist Torsten Sløk argues that there’s now a “diversification illusion” when buying the S&P 500, which is in practice just Nvidia in drag. Even the clown prince of SPACs weighed in on this over the holidays, arguing that it was a “disaster” waiting to happen for anyone buying a now-precariously concentrated S&P 500 index fund: Look, yes, unambiguously this kind of concentration is obviously not great. It makes the global stock market look like an inverted pyramid resting precariously on a few big and richly-valued American companies. If they tip over then the damage will be severe and widespread. US stocks now account for a whopping 66.6 per cent of the MSCI All-Country World Index (fittingly, the number of the beast). Apple, Nvidia and Microsoft alone make up 13 per cent of the $78tn inde

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