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Five Biggest Stocks Are 23% of S&P 500 Market Cap

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Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#41

Post by Tsiklon »

solatic wrote: post #36

I'm not sure whether people understand just how big of a problem this is. Resilient economies are well-balanced economies. When Big Tech falls - and it will eventually fall, because no industry is immune to corrections or busts - - the effect on the wider economy will be all the greater. The greater a share of the stock market that Big Tech holds, the larger the blast radius their failure will impose on the wider eco…

I have no knowledge in this field whatsoever, but is this more an indication that we shouldn't be using the S&P 500 and similar indices as an overall indicator of the performance of the economy, is there value in looking at these indices absent of Big Tech?

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#43

Post by Cthulhu_ »

andy_threos_io wrote: post #21

More interesting, that around 2000 the top 5 was Microsoft, GE, Cisco, Intel, Walmart. Nothing last forever.

All of which are still massive companies, with Walmart pulling in half a trillion per year in revenue, double that of Apple or Amazon. Stock market value only tells part of the story (that of the richest getting richer).

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#44

Post by dgrin91 »

JumpCrisscross wrote: post #13
bluedevil2k wrote: post #6

Try the ETF with the symbol "RSP". It's an S&P 500 fund, but each of the 500 is equally weighted. In other words 0.2% of the fund. The theory is that the larger companies in the S&P 500 have less growth potential, or are already overvalued, compared to the smaller companies.

> Try the ETF with the symbol "RSP". It's an S&P 500 fund, but each of the 500 is equally weighted. Note that an equal-weighted index will tend be more volatile, have higher turnover ( i.e. more trading costs and short-term tax effects) and be sensitive to value over momentum in comparison with a market-cap weighted index like the S&P 500. The former have outperformed the latter over the last decade (EDIT: no, it has…

To put the nail in the coffin, take a look at a comparison between the two: https://www.google.com/finance/quote/.INX:INDEXSP?sa=X&ved=2...

Historical performance of RSP has always lagged behind SPX

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#46

Post by andrewmcwatters »

Tsiklon wrote: post #41
solatic wrote: post #36

I'm not sure whether people understand just how big of a problem this is. Resilient economies are well-balanced economies. When Big Tech falls - and it will eventually fall, because no industry is immune to corrections or busts - - the effect on the wider economy will be all the greater. The greater a share of the stock market that Big Tech holds, the larger the blast radius their failure will impose on the wider eco…

I have no knowledge in this field whatsoever, but is this more an indication that we shouldn't be using the S&P 500 and similar indices as an overall indicator of the performance of the economy, is there value in looking at these indices absent of Big Tech?

There is an S&P 500 Equal Weight Index, but it makes essentially no difference.

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#47

Post by JumpCrisscross »

lotsofpulp wrote: post #14
JumpCrisscross wrote: post #13

Earlier quoted context omitted.

> Try the ETF with the symbol "RSP". It's an S&P 500 fund, but each of the 500 is equally weighted. Note that an equal-weighted index will tend be more volatile, have higher turnover ( i.e. more trading costs and short-term tax effects) and be sensitive to value over momentum in comparison with a market-cap weighted index like the S&P 500. The former have outperformed the latter over the last decade (EDIT: no, it has…

Have equal weighted indexes outperformed market cap weighted indexes in the last decade? Morningstar shows VOO with a greater total return than RSP for past 5 years and since inception. I didn’t see past 10 years at a quick glance, but I imagine it’s the same.

> Have equal weighted indexes outperformed market cap weighted indexes in the last decade?

No, it hasn’t. I had a bad source. Thank you.

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#48

Post by throw0101a »

solatic wrote: post #36

I'm not sure whether people understand just how big of a problem this is. Resilient economies are well-balanced economies. When Big Tech falls - and it will eventually fall, because no industry is immune to corrections or busts - - the effect on the wider economy will be all the greater. The greater a share of the stock market that Big Tech holds, the larger the blast radius their failure will impose on the wider eco…

Historical data says otherwise. Right now the five biggest make up 23%, in April they were 21.38%.

In 1964 the five biggest made up 27.60%:

* https://theirrelevantinvestor.com/2020/04/21/the-only-thing-...

In 1964, AT&T alone made up 8.90% and in 1969 IBM alone made up 9.00%.

The author of this story needs to look into history more and go back more than just thirty years.

Companies and industries rise and fall and have for centuries in the stock market:

* https://en.wikipedia.org/wiki/Technological_Revolutions_and_...

> This paper argues that the two boom and bust episodes of the turn of the Century –the Internet mania and crash of 1990s and the easy liquidity boom and bust of 2000s– are two distinct components of a single structural phenomenon. They are essentially the equivalent of 1929 developed in two stages, one centred on technological innovation, the other on financial innovation. Hence, the frequent references to that crash, to the 1930s and to Bretton Woods, are not simple journalistic metaphors for interpreting the “credit crunch” and its solution, but rather the intuitive recognition of a fundamental similarity between those events and the current ones. The paper holds that such major boom and bust episodes are endogenous to the way in which the market economy evolves and assimilates successive technological revolutions. It will discuss why it occurred in two bubbles on this occasion; it examines the differences and continuities between the two episodes and presents an interpretation of their nature and consequences.

* PDF: http://www.carlotaperez.org/downloads/pubs/C.PEREZ_CJE_Doubl...

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#49

Post by throw0101a »

daxfohl wrote: post #35

The interesting thing is it's all one industry. Has that ever happened before? Oil was pretty dominant for a while, but nothing like this.

It's happened with basically all industries: oil, canal building, rail roads, cars. Even bicycles:

> Technological revolutions are often accompanied by substantial stock price reversals, but previous literature has produced competing explanations for why this is the case. This paper brings new evidence to this debate using data from the innovation-driven British Bicycle Mania of 1895-1900, in which cycle share prices rose by over 200 per cent before collapsing by more than 75 per cent. These price patterns are not fully explained by fundamentals or by changes in the nature of risk associated with cycle shares. Instead, the evidence from the Bicycle Mania supports the hypothesis of Perez (2009), who argues that new technology, high short-term profits, and loose monetary conditions increase the level of speculative investment, ‘decoupling’ share prices from fundamentals.

* https://www.econstor.eu/bitstream/10419/148345/1/87292534X.p...

Recent video by Ben Felix of PWL Capital on the topic, "Investing in Technological Revolutions":

> Exciting new technologies, and the companies that create them, seem like obvious investment opportunities. Why wouldn’t you want to invest in the companies leading a new world-changing technological paradigm?

* https://www.youtube.com/watch?v=UZnVt_CvL3k

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#50

Post by rjkennedy98 »

solatic wrote: post #36

I'm not sure whether people understand just how big of a problem this is. Resilient economies are well-balanced economies. When Big Tech falls - and it will eventually fall, because no industry is immune to corrections or busts - - the effect on the wider economy will be all the greater. The greater a share of the stock market that Big Tech holds, the larger the blast radius their failure will impose on the wider eco…

> I'm not sure whether people understand just how big of a problem this is.

I'm usually the last to defend the construction of the US economy, but I think this is a bit of an overreaction. The stock market is not the economy. Big Tech bubbles are bad, but this isn't 2008 where people lost their houses because of financial engineering.

I think the bigger story (and issue) is just how few people are involved in and benefiting from Tech. These companies have massive market caps because they employ a tiny amount of people relative to how much money they make. For every one tech worker making high six figures there are a 50 people doing low-level healthcare service work. The vast majority of Americans own trivial amounts of stock, so they don't even benefit indirectly from the Tech bubble. All of this is just exacerbating the radical divergence of the haves and have-nots in our economy.

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