Five Stocks Are Driving the S&P 500 Higher as Big Tech Concentration Deepens

“A Shock to Tech Stocks Could Hit the Entire Market”

The concentration of gains in large-cap stocks has intensified in the U.S. equity market this year, fueling concern that the rally has become more vulnerable as a small group of artificial intelligence-related technology companies drives the advance.

UBS said on May 7 that the S&P 500’s effective number of constituents fell to 42 last week, the lowest level on record. The gauge measures how many stocks are materially contributing to the index’s gains. For decades, the average was about 100.

More than half of the S&P 500’s recent gains were driven by just five companies: Alphabet, Nvidia, Amazon, Broadcom and Apple. The Financial Times reported that the S&P 500 Equal Weight Index has lagged the standard S&P 500 since the market surged in April. While the main S&P 500 gives more weight to companies with larger market capitalizations, the equal-weight version assigns the same weight to every stock. Semiconductor shares have been at the forefront of the rally. The Philadelphia Semiconductor Index has jumped more than 40% since the war broke out in February.

At the start of the year, investors had expected money to rotate into out-of-favor sectors such as homebuilders and mining. That view was derailed by the outbreak of war between the U.S. and Iran. As the conflict dragged on, energy prices surged, raising concern about profitability in industries outside technology. FactSet data showed first-quarter earnings growth in the S&P 500 technology sector topped 40%. Earnings in the financial sector rose just 1%, while healthcare profits declined.

The market’s heavy reliance on technology shares has stoked fears that any stumble in the sector could trigger a sharp broader selloff. Goldman Sachs said concentration in the U.S. stock market has climbed to its highest level in decades, signaling near-term downside risk for the S&P 500.

Han Myung-hyun, Hankyung reporter, wise@hankyung.com