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How 3 Stocks Drove 49% of the S&P 500’s Gains in 1H 2024 Thumbnail

How 3 Stocks Drove 49% of the S&P 500’s Gains in 1H 2024

Insights Investment

Key Takeaways:

  • NVIDIA, Alphabet, and Microsoft collectively posted a 49.3% gain between January and June 2024 accounting for 49% of S&P 500 gains
  • Currently the 10 largest stocks, account for 35% of S&P 500 index.  This is 2x the concentration from 10 years ago.
  • When markets an index is highly concentrated you sink or swim with those largest companies. 
  • Diversification to small- and mid-cap stocks help to get exposure to the next rising stars
  • Investor trends change, diversification to other sectors help assure you are participating in the next wave

Stock Market Concentration

Seven companies that have carried the U.S. markets to one new all-time high after another have been deemed the “Magnificent Seven” stocks.... 

But what if you were told that just three of these stocks were responsible for almost half of the S&P 500’s overall gain as of June 30, 2024?

The seven companies–Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Meta Platforms (META), Microsoft (MSFT), NVIDIA (NVDA), and Tesla (TSLA)–are up a collective 31% in the first six months of 2024, compared to 7.4% for the rest of the index (the “S&P 493”). The overall S&P 500 has risen 14.5%.

However, NVIDIA, Alphabet, and Microsoft collectively posted a 49.3% gain between January and June 2024, adding around $2.85 trillion in market cap.  The S&P 500 overall gained $5.8 trillion of market cap in the first six months of the year, meaning these three companies drove 49% of the index’s total gains.  (All seven “Magnificent Seven” stocks as a collective accounted for 64.3% of S&P 500 market cap growth for the first half of the year.)


How Concentrated is the U.S. Stock Market?

As of June 2024, the top 10 stocks account for 35.8% of the S&P 500 index, widely regarded as the primary benchmark for measuring the US stock market.   Just 5 years ago, the top 10 stocks comprised just 21.6% of the index.  Note that six companies have been in the top 10 for the last five years and now nine of the 10 stocks in the index are all technology companies.

Looking back just 10 years, U.S. stock market has become twice as concentrated in the top 10 stocks. Ten years ago, 17.4% of the index was concentrated in the top 10 stocks and only two companies were from the technology sector.  In 2014, NVIDIA has just grown out of its small-cap status.  

Moral of the story:

  1.  When markets are highly concentrated the fate of a market-cap weighted indices performance, positive or negative, is driven by the largest companies. 
  2.  Investors in the S&P 500 have had significant exposure to the top performing technology companies 
  3.  Maintaining exposure to small and mid cap stocks are a way to invest in upcoming companies at an early stage of their growth cycle.
  4.  Investor trends change, maintaining exposure to different sectors through diversification is a way to make sure you have exposure to the current hot sector and what might come next.