🚩 Is the US stock market too concentrated🚩

📌 The recent surge in the S&P 500, surpassing the 5,000-point threshold, has sparked discussions about the trajectory of the index for the rest of the year. Just months ago, analysts were projecting a modest increase for 2024, but the index has already exceeded those expectations within a short span of two months.

📌 One notable aspect of the current market landscape is the significant concentration of value within a handful of companies. With six companies boasting market capitalizations exceeding one trillion dollars—namely Microsoft, Apple, Nvidia, Amazon, Alphabet, and Meta—these tech giants have played a pivotal role in driving the recent market rally. Conversely, Tesla has faced exclusion from this elite club due to various operational challenges.

📌 While the level of concentration may appear high, historical context reveals similar scenarios in the past, such as during the 1950s and 1960s, as well as during the dot-com bubble of the early 2000s. Furthermore, a comparison with international stock markets underscores that concentration is not unique to the United States.

📌 Looking ahead, analysts anticipate a slowdown in the earnings growth of major tech companies, with a potential recovery among other firms throughout the year. However, the question of whether the current market situation constitutes a bubble remains uncertain. Past bubbles have often revolved around groundbreaking innovations, such as the Internet or automobiles. Could AI be the next catalyst for future market expansion?

Source: CNBC