Market Concentration Risk

February 29, 2024

For the first time ever, the top 10 names in the S&P 500 Index make up more than 30% of the total market capitalization. This is a greater concentration than the dot-com days in the late 1990’s – right before the bubble burst.

How did 10 Companies Come to Control One Third of the Market?

It was not overnight that 10 businesses came to make up 30% of the market capitalization of the S&P 500 Index (Figure 1). On average, these 10 firms have been in the top 10 for 92 consecutive months – far longer than the average 68 consecutive months for historical top 10 firms.1

These top 10 appreciated significantly, due to a variety of fundamental factors. The first catalyst was the rush to well-known, high-quality companies that provide stable earnings and strong cash flows during the extreme uncertainty brought about by the pandemic. The exuberance around artificial intelligence and the use of AI to boost top and bottom-line growth amongst the Magnificent Seven has continued to propel market concentration.

The top 10 firms grew earnings-per-share (EPS) by 31% versus -5% for the rest of the market in 2023.2 For full year 2024, the top 10 are expected to post 20% EPS growth versus 8% for the rest of the market.3

 Why is Lower Diversification Risk #1?

The biggest risk of the extreme concentration we see is not a massive market pullback as a result of a bubble bursting – even if regulators were to try to break-up big tech. Rather, reduced diversification is a more pressing risk to portfolios today.

The top 10 firms in the S&P 500 index now makes up nearly 20% of the total global market capitalization (Figure2).

With outsized returns of those larger firms driving broad-based US equity returns above non-US markets (the S&P 500 Index is up a cumulative 38% since the end of 2020 vs. just 5% for MSCI ACWI-Ex US Index(developed markets index)),4 the US now makes up more than 60% of the global market cap – the highest since the dot-com days. This means global equity benchmarks have less geographic diversification.

 Industry concentration has led to a record level of sector concentration among the top names (Figure 3).

The top two sectors – Information Technology and Communication Services – make up 25% of the S&P 500 Index’s market capitalizations. This record high surpasses the 20% level from the top two sectors during the dot-com days. Historically, the top 10 firms represented 6.3 sectors on average.5

Today there are just four sectors(IT, Communication Services, Consumer Discretionary and Financials) tying the recent record low from 2021 and underscoring the top of the market’s lack of sector diversification.


Due to the growth profile of the top ten, there is less style diversification than usual.

The S&P 500 Index now has more than twice as many Growth stocks (46%) as Value (21%) stocks.6 The average allocation over the past 30 years has been near evenly split (31% vs. 32%).7

The broader US equity market also has more disparity across market cap styles. The combined group of mid and small caps now accounts for just 7.9% of total market capitalization within the S&P 1500 Total Market Index, the lowest percentage ever and well below the 30-year average of 11.2%.8

Does This Record Market Concentration Foreshadow a Drawdown?

The average return for the top 10 in 2023 was 85.6% vs 16% for the other 490.9 In other words, the top 10 drove 63% of the S&P 500 Index’s total return,10 far more than what the top 10 has historically returned. The top 10 stocks represented 24% of the total return over the past 30 years.11 In 1999, they contributed 43%.12

The outsized influence on recent returns being far greater then the dot-com concentration supports the narrative that extreme concentration could be a harbinger of market doom.

But there is no connection to levels of market concentration and the subsequent 6- or 12-month forward returns (Figure 4). The R-squared of the returns to the starting point of the market concentration are 0.04 and 0.07 respectively.13 There is also less impact from the top 10 on the way down than on the way up. The top 10’s contribution to return (29%) during years with market gains is greater than years with market losses (12%), on average.14

Redistribution of fundamental earnings growth will likely be the catalyst that restrains the top 10’s impact on the market of the next year. We anticipate non-top 10 firms to post equivalent EPS growth as the top 10 by Q3 2024, and then to outpace the top 10 in Q4 (23% vs. 15%).15

How can you Increase Diversification to Combat Risk?

With only a few names making up an outsized portion of global markets, there is less geographical, sector and style diversification within today’s equity portfolios. How could you increase the diversification in today’s concentrated portfolios?

  • Increase exposure to US mid-caps and small-caps closer to historical averages (~11.2% vs. 7.9% currently).
  • Add non-US equities, like developed ex-US equities or emerging market exposures.
  • Use a sector strategy to help ease the outsized sector concentration at the top. For example, pair an equal-weighted portfolio of the sectors not found in the top 10(Energy, Materials, Industrials, Real Estate, Consumer Staples, and Health Care) with a sector-concentrated large-cap exposure. This also might help reduce the portfolio’s growth bias, as those six sectors are Value-oriented.
  • Implement a systematic fundamental large-cap core exposure that owns all the stocks in the broader market, but uses fundamentals and risk sensitivities to weight firms beyond just market cap.


S&P 500 Index The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
S&P 1500 Total Market Index The Standard & Poor's 1500 Total Market Index is a broad-based capitalization-weighted index of 1500 U.S. companies and is comprised of the S&P 400, S&P 500, and the S&P 600.
MSCI ACWI-Ex US Index is a market-capitalization-weighted stock market index that measures the stock performance of the companies in developed and emerging markets excluding the United States.
Magnificent Seven is a group of US firms consisting of Amazon, Meta, Tesla, Alphabet, Microsoft, Nvidia, and Apple.
R-Squared is a statistical measure that represents the proportion of the variance for a dependent variable that's explained by an independent variable.
Dot-Com a bubble featuring a rapid rise in U.S. equity valuations fueled by investments in Internet-based companies during the bull market in the late 1990s.

Important Information

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

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  1. FactSet, as of February 7, 2024, based on SPDR Americas Research using monthly data from 1989 to 2024. 
  2.  FactSet, as of February 7, 2024.
  3.  FactSet, as of February 7, 2024.
  4.  FactSet, as of February 7, 2024.
  5.  FactSet, as of February 7, 2024.
  6. Morningstar, as of February 7, 2024.
  7. Morningstar, as of February 7, 2024.
  8. FactSet, as of February 7, 2024.
  9. FactSet, as of February 7, 2024.
  10. FactSet, as of February 7, 2024.
  11. FactSet, as of February 7, 2024.
  12. FactSet, as of February 7, 2024.
  13. FactSet, as of February 7, 2024, based on SPDR Americas Research calculations based on monthly data from 1989 to 2024.
  14. FactSet, as of February 7, 2024.
  15. FactSet, as of February 7, 2024, based on SPDR Americas Research calculations based on monthly data from 1989 to 2024.


Matthew J Bartolini, State Street Global Advisors;, February 13th, 2024