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The market's biggest stocks hold the largest share of the S&P 500 in 40 years as mega-cap tech returns swell

Aug 10, 2020, 22:54 IST
Business Insider
REUTERS/Brendan McDermid
  • Investors' rush to tech giants pushed weighting of the S&P 500's 10 biggest stocks to record highs.
  • The companies took up roughly 29% of the index as of July 31, according to The Wall Street Journal, the largest share in data going back at least 40 years.
  • Several of the largest firms rallied through the summer to erase the S&P 500's year-to-date losses and push the tech-heavy Nasdaq composite to all-time highs.
  • Yet several experts warn that such outsized crowding can drive a market meltdown if any one of the mega-caps falters.
  • Watch the S&P 500 update live here.
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Wall Street's obsession with tech mega-cap tech stocks has pushed the weighting of the S&P 500's 10 biggest components to record levels.

The companies — which include Apple, Facebook, Amazon, Microsoft, Berkshire Hathaway, and Alphabet — comprised roughly 29% of the S&P 500 as of July 31, The Wall Street Journal reported, citing data from S&P Dow Jones Indices. That share is the largest in data going back 40 years.

Apple holds the greatest weight in the index, taking up roughly 6.5%. Microsoft and Amazon follow with 5.8% and 4.8% shares, respectively. Proctor & Gamble takes the final spot in the top 10 with a 1.2% weighting.

Much of the increase comes from recent crowding in the market's biggest tech stocks. Investors began piling into the firms at the start of the pandemic, betting the companies' software revenues and healthy cash flow would insulate them from the economic fallout. The lengthy shift to tech stocks drove the Nasdaq composite to record highs through the summer and erased the S&P 500's year-to-date losses.

Read more: JPMorgan says buy these 19 'diamond in the rough' stocks that have plunged from yearly highs, but are spring-loaded for huge gains ahead

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Those expecting tech mega-caps to outperform through the nationwide shutdown weren't wrong. The industry giants all trounced second-quarter earnings expectations in late July, pushing the stocks' prices even higher. Amazon has rallied the most and sits up 70% year-to-date. Apple follows with a 53% jump, while Microsoft stands 32% higher.

Yet Wall Street experts fear the heavy concentration in a select few names poses a major risk to the entire market. The trend has some striking similarities to the late-1990s tech bubble, according to Goldman Sachs. If any of the S&P 500's biggest components tumble, the decline would likely kick off a wave of selling and strong bearish momentum, the firm said.

Read more: No money, no education, and no connections: Here's how Brian Burke went from a small-time house flipper to a real-estate investing magnate with over 750 deals and 3,000 units

"From a macro perspective, record concentration means the S&P 500 has never been more dependent on the continued strength of its largest constituents or more vulnerable to an idiosyncratic shock to any of these stocks," David Kostin, chief US equity strategist at Goldman Sachs, said in a recent note.

Even if the market's biggest tech stocks fell 10%, the bottom 100 stocks of the S&P 500 would need to rally 90% to make up for the drop, he added.

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The S&P 500 reached 3,350.08 as of 11:40 a.m. ET Monday, up 4% year-to-date and mostly unchanged from Friday's close.

Now read more markets coverage from Markets Insider and Business Insider:

Nikola soars 22% after securing order for 2,500 electric garbage trucks

Oil rises after Saudi Aramco sees Asia demand nearing full rebound

A Wall Street expert breaks down why investors should be giving more weight to small companies in their portfolios — and says these 4 sectors are set to boom amid the pandemic fallout

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