Chart of the week

Stock market concentration near a tipping point?

Concentration issues? This week’s chart looks at the top 10 stocks’ growing representation within the S&P 500.

June 16, 2023

Top ten share of S&P 500 market cap

Source: FS Investments, Bloomberg Finance, L.P., as of May 31, 2023.

  • Markets rallied this week as investors largely overlooked a “hawkish pause” by the Fed. The week’s action was generally in line with the year-to-date run-up; the S&P is up 16.2% despite a questionable economic backdrop that has produced an air of uncertainty around the outlook for risk assets.
  • Investors have no doubt enjoyed the strong returns, yet they underscore a potential weakness. Namely, more than 85% of gains in the S&P 500 YTD can be attributed to seven of the largest stocks in the index.1 Outside these megacap, mostly tech names, performance looks much weaker, especially in cyclical industries.
  • In fact, investing in the S&P 500 today increasingly implies a concentrated bet on a small group of stocks. As the chart shows, the top 10 stocks’ share of the S&P 500 Index has nearly doubled, from about 17% in 2015 to 32% today.1 What’s more, these same stocks driving the index’s return have become increasingly expensive as their share of the Index has grown.
  • It should come as no surprise that an extended era of low and declining interest rates has delivered a market that is concentrated in stocks that mostly benefit from low and declining interest rates. Yet, the top of the U.S. stock market increasingly trades as a bond proxy, which has wide-ranging consequences for portfolio construction.
  • Eventually there is a point where the music stops. With this in mind, investors would be wise to proactively address the risks that elevated concentrations may pose in their portfolios today.

  • Bloomberg Finance, L.P., as of May 31, 2023.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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