over 2 years ago • 1 min
The five largest stocks in the S&P 500 make up a greater weight in the index than at any time in the past five decades – showing just how reliant the US stock market has become on investor appetite for Apple, Microsoft, Alphabet, Amazon, and Tesla.
As the chart above from Bianco Research shows, those five companies currently account for nearly a quarter of the index’s value. That’s the highest proportion since 1969, when US markets were dominated by “Nifty Fifty” stocks like IBM and Xerox.
What’s doubly interesting is that investors don’t seem particularly attracted by these big companies’ current profits, but rather their potential for future earnings. The chart below from Societe Generale shows how the biggest stocks’ recent dominance has been driven more by investors bidding up price-to-earnings (P/E) ratios than by these firms boosting actual profit.
The gap between the top 10 stocks’ P/E ratio and the valuation of the rest of the S&P 500 is even wider than during the heady days of the dot-com boom.
If investors someday lose confidence in the ability of America’s tech giants to build future profits, it could make a serious dent in the S&P 500.
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