Skyrocketing Market Concentration: Is It Time To Brace For Impact Or Seize Opportunities?

The accompanying chart highlights the comparative size between the largest U.S. listed stock and the 75th percentile stock over the past 100 years. The chart reflects eight peaks of concentration in the past century, with almost all occurring before major market declines. Notable exceptions were in 2009, preceding the bull market after the Great Financial Crisis, and in 1932 when the market bottomed after the 1929 Crash (probably because only the largest, most well-financed, companies survived the plummet to the 1932 low).

The current 2024/2025 peak can only be matched by the 1932 event (which clearly does not mark a major market low). The recent peak in market concentration (driven by Nvidia and the rest of the “Magnificent 7”) has seen the top ten stocks in the S&P 500 recently reach an unprecedented 40% market weight, which suggests an increasing probability of an impending downward trend.

It’s crucial not to rely on one or two indicators to form an investment strategy. The current bullish market move could persist longer than expected before the next bear market arrives. We learned long ago to rely on market price action to confirm our market views, both bearish and bullish. We have developed a set of trusty tools in this regard, which we share each month in the pages of our paid service, the Global Investment Letter.

The reminder provided by the accompanying chart, along with the host of available economic and geopolitical catalysts for volatility, should motivate investors to remain vigilant for evidence of a trend change.

Despite the challenges of the current macro investing environment, we remain excited at the opportunities that the anticipated volatility will bring, from both the long and short sides of the market and across asset classes.

As always, we’ll be sharing our analysis of unfolding events and investing activities each month in the Global Investment Letter. If you found this post insightful, imagine the value you’ll get out of the full letter. Subscribe now to our free weekly investment comment (exclusive to those who signup) and gain access to free sample issues of the Global Investment Letter.

Join our growing community here: https://www.globalinvestmentletter.com/sample-issue/