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Market concentration on US stock exchanges has reached historic highs. Just ten companies now account for almost 40 per cent of the S&P 500 Index, leaving it increasingly reliant on fewer pillars. “While investors may benefit in the short term, the risk is growing that setbacks among individual heavyweights could destabilise the entire market,” explains Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM. Diversification rather than concentration on the index is the order of the day.

The US equity markets are currently more dominated by a handful of large corporations than at almost any other time. The ten largest companies in the S&P 500 now make up nearly 40 per cent of the index’s total weighting. By comparison, their share was around 17 per cent a decade ago. Even at the peak of the internet boom in 2000, the top ten accounted for only about 26 per cent of the index.

This trend is driven by a few heavyweights in the technology and platform sectors. With a market capitalisation of over four trillion US dollars, Nvidia leads the field, followed by Microsoft (3.8 trillion), Apple (3.4 trillion) as well as Alphabet, Amazon, Meta, Broadcom, Tesla and others. “They now exert a decisive influence on the overall direction of the S&P 500,” Fischer notes.

The downside of this concentration is clear: the performance of just a few stocks increasingly determines the overall picture. Setbacks among individual mega-caps can weigh on the entire market – even if the majority of companies in the index remain stable. “With such a narrow market breadth, caution is warranted,” says Fischer. “It should be seen as a warning signal for heightened volatility.”

For investors, the picture is twofold: those broadly invested in the index may appear to benefit disproportionately in the short term from the strength of a few market leaders. At the same time, however, the risk of concentration effects is rising, as overall performance depends increasingly on only a handful of companies.

“A balanced portfolio structure therefore remains essential,” Fischer stresses. Spreading investments across regions, sectors and company sizes can unlock additional opportunities while cushioning risks – and these are considerable. In the long run, the current level of concentration is highly unusual. “Historical data suggest that phases of excessive market focus rarely last,” Fischer concludes. Investors should therefore not rely solely on the supposed stability of the tech giants, but instead ensure broad diversification.