Will The Concentration of The 5 Largest Socks in the S&P 500 be a Problem?

The 5 biggest companies in the S&P recently reached a combined weighting of 23%, much greater than the similar measure at the peak of the internet bubble or the previous high in 1980.

As we have commented previously, the current market concentration is a reflection of the pervasive influence of the internet on the economy as well as the popularity of passive investment strategies which serve to drive capital into the highest market weight stocks.

While these market leaders, Amazon, Apple et al are wonderful businesses, their domination of the index raises the risk of significant market volatility should one or all these shares come under pressure. The two previous highs of this measure occurred not long before significant market declines.

This unusual market concentration provides supporting evidence for our thesis that the 2020s will be an unusually volatile decade for investors that will generate both great risks and opportunities.

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