This story was originally published here.
The last time investors were so concentrated in five stocks was at the peak of the tech bubble.
We all know what happened after that.
The S&P 500 Index fell by 41 in two years. Five trillion dollars were wiped out in the stock market during that time.
Twenty years later, one of those stocks has risen back into that exclusive club: Microsoft Corp. (Nasdaq: MSFT) is once again one of the top five most-invested-in stocks.
The always-popular FAANG stocks are the rest of the market’s top stocks today: Facebook Inc. (Nasdaq: FB), Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL), Netflix Inc. (Nasdaq: NFLX) and Alphabet (Nasdaq: GOOGL).
Here’s the chart that’s been making the rounds on social media:
Excluding Netflix because it’s a little outside of these numbers, today’s top five stocks make up about 22% of the S&P 500 Index’s total market capitalization.
In 2000, the top five accounted for 18% of the index.
The S&P 500 Index is an index of 500 of the largest U.S.-listed stocks. Market capitalization, or market cap, is a stock’s share price multiplied by its shares outstanding.
By this measure, 1% of stocks account for a fifth of the index’s value.
That’s a huge concentration of investment dollars in a tiny sliver of the stock market. It tells us investors don’t feel comfortable investing anywhere else.
This concentration is not the death knell for these stocks or the broad market. But it’s not healthy either.
A lopsided market is more easily toppled when things start to shake.
Here’s what I mean…
Editor's Note: Click here to keep reading.
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Editorial Director, Banyan Hill Publishing
