The Information Technology (IT) sector’s weight in the S&P has returned to around 29%, a level reminiscent of the dotcom bubble in 2000 when it reached a similar weighting before the market correction. In 1995, IT had a weighting of about 8.5%, and its subsequent surge contributed to the dotcom bubble. Presently, the top 10 largest companies include the Magnificent Seven, indicating high concentration. JPMorgan highlights the risk of extremely concentrated markets, stating that a limited number of stocks, especially within the top 10, could pose a significant risk to equity markets in 2024, potentially leading to market drawdowns. Chart from FT.
The Magnificent Seven—Microsoft, Apple, Alphabet, Amazon, Nvidia, Meta, and Tesla—played a pivotal role in driving the market higher in 2023, contributing significantly to the S&P 500’s return. According to calculations by Bank of America (BofA), these seven companies accounted for 45% of the S&P 500’s return in January.
The concentration of gains in just a handful of large technology stocks presents a potential obstacle that could jeopardize the S&P 500’s winning streak. The market’s dependence on a limited number of major technology stocks raises concerns about the sustainability of the broader market’s positive performance
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