The Stock Market Is Too Narrowly Focused
When just a handful of companies lead equities higher, trouble often follows for investors.
Is the bull market in trouble?
Photographer: Spencer Platt/Getty Images
The breadth of the stock market is a measure of its health, and the wider the better. So, a narrowing of its focus, as we’ve seen recently, is often a red flag, both for the overall market and the darlings of the moment.
The 10 largest stocks by market capitalization account for 30% of the S&P 500 Index’s total value, and five — Apple Inc., Microsoft Corp., Nvidia Corp., Alphabet Inc. and Tesla Inc. — accounted for about a third of the index’s 27% gain in 2021. In short, if anything goes wrong with that handful of equities, as well as mutual and exchange-traded funds based on the broad market, everyone might be in trouble.