Just 5 Stocks Account for 20% of the S&P 500

Mish

If you believe you are diversifying by buying an index ETF, you are mistaken.

Dave Rosenberg had an interesting set of observations in today's Breakfast with Dave.

  • The five largest stocks (Apple, Alphabet, Facebook, Microsoft and Amazon) now comprise nearly one-fifth of the entire S&P 500 market cap.
  • This is the highest concentration since the dotcom bubble peak of 2000.
  • I’m sure the majority don’t realize that for every hundred dollars they are plowing into these [passive ETF index] vehicles, they are putting nearly $20 of that into just five stocks.
  • Just remember, that these stocks can have as much influence on the way down as they did on the way up. And we should also remember that every bubble pops.
  • Once it becomes apparent that these growth companies can’t continue to grow by the multiples of nominal GDP that are currently priced in, the realization will send these stocks into a period of downward momentum that could be accentuated by a herd effect heading to the exits in these heavily populated indexed funds.

Market Caps

  1. Apple (AAPL): $1.4 Trillion
  2. Microsoft (MSFT): $1.4 Trillion
  3. Amazon (AMZN): $1.1 Trillion
  4. Alphabet (GOOG): $1.0 Trillion
  5. Facebook (FB): $0.61 Trillion

What's Cheap?

  • As for the energy stocks, they now comprise a mere 4% share of the S&P 500 market cap. A decade ago, the share stood north of 11%. The only sector trading more inexpensively are the financials ─trading at a 13.2x forward price-to-earnings multiple compared with 18.6x for the overall market.
  • I highly recommend a read of Energy Stocks Might Have Finally Hit Bottom on page 14 of Barron’s.
  • Just look at the dividend yields on some of the bellwethers, ranging from 3% to 7%, and some with price-to-earnings multiples of 10x-12x.

Those points also from Rosenberg.

If we are indeed headed into recession, what's cheap might get a lot cheaper.

But despite all the Greta demands and AOC plans, the need for energy will not go away, nor will it be replaced by wind and solar any time soon.

Greta Demands: Please see All Hail Greta, the Great Carbon Hypocrite

AOC Plans: Please see AOC's Green New Deal Pricetag of $51 to $93 Trillion vs. Cost of Doing Nothing

Mike "Mish" Shedlock

Comments (12)
No. 1-6
Bam_Man
Bam_Man

Exxon Mobil is trading at a 9-year low and has a 5.74% dividend yield.

Its balance sheet is no longer "Gilt-edged", but this is still by any measure a blue-chip company. Can't say there's nothing cheap to INVEST in out there. This is cheap.

KidHorn
KidHorn

Oil companies have 2 potential problems. Democrats and electric vehicles. Sooner or later, almost all cars will be electric and the oil companies will be plastic producers.

Esclaro
Esclaro

The S&P 500 will never go down because the Fed will print and the PPT will buy.

jberman4
jberman4

Hi Mish,

Just FYI: The Vanguard Total Stock Market EtF (VTI) has 14% of its value in those 5 stocks. I agree that there is certainly some risk, and that the ETF is not as diversified as one would think.

You do raise an interesting point and I see that it might be worth a discussion with a Vanguard advisor.

Take care,

Jeff

Sechel
Sechel

You bring up an interesting point. Wonder if anyone has attempted an s&p 500 index fund where companies are equally weighted or use a different mechanism to deemphasize extremely large cap stocks such as The S&P 500® Equal Weight Index (EWI)

Sechel
Sechel

Those five tech companies are also highly correlated so even more concentration


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