Market Insights: S&P 500 Concentration

James Sawdon
James Sawdon

Reflecting on the S&P 500's impressive 24.2% surge in 2023 and peering into the future of 2024 unveils a standout performer within the index - the "Magnificent Seven." These specific seven stocks, comprised of Amazon, Tesla, Alphabet, Meta/Facebook, Apple, Microsoft, and Nvidia, emerged as the star with a staggering 75.7% growth in 2023, surpassing the equally weighted index by a remarkable 64%.

Market Insights: S&P 500 Concentration

What fueled this exceptional outperformance? Let's delve into the intricacies:

  • Earnings Triumph: The seven stocks experienced a notable 17.4% increase in earnings in 2023, standing in stark contrast to the over 9% decline in the equally weighted index. Results, indeed, mattered in this dramatic narrative.
  • Valuation Mastery: The change in the multiples paid for these seven stocks witnessed a substantial 50.5% increase, showcasing a significant contrast to the 9.3% uptick in the equally weighted S&P 500.
S&P 500 Index, Top 10 Shares of Total Market Cap

In essence, these seven stocks not only outshone their counterparts but also commanded a higher price from investors due to their stellar performance. So, where does this leave us? We find ourselves in uncharted territory, navigating the aftermath of the dramatic rise of these stocks versus the rest.

As evidenced in the attached chart, the current top 10 stocks' share of the S&P 500 has reached an unprecedented all-time high in the past 40+ years. The landscape is evolving, and we stand at a juncture where the market dynamics are reshaping, guided by the remarkable ascent of the Magnificent Seven.

Going forward, we would typically expect a broadening out of market performance to the other 493 stocks in the S&P 500. This may take time and as the chart indicates, concentrations at these levels typically do not last very long.

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