‘Big Tech’ Has Made the Market Concentrated, Other Sectors Remain Important

March 25, 2022

By Tim Courtney, Chief Investment Officer

High concentration in markets happens from time to time. This is when a relatively small number of companies or sectors make up larger and larger weights of the market. Over the last decade, we’ve seen concentration like never before with the world’s first trillion-dollar companies appearing in the last 5 years. Mega-cap names like Apple, Microsoft, Amazon, Alphabet and Meta (formerly Facebook) have dominated competitors and generated one-third of the S&P 500’s returns over the last five years.1

Prior market concentrations have not reached today’s levels, where the largest 10 companies make up roughly 30% of the market. Historically, these periods have ended when valuations became too high, business models were unsustainable, consumer behavior changed, or economic and competitive forces rearranged markets. Good examples of recent concentrations are the tech bubble during the late 1990s and financials before the financial crisis of 2007-2008.

Although current concentration has reached record levels, it will likely become more dispersed over time if markets remain open and competitive. While strong competitors haven’t fully emerged yet and valuations aren’t terribly high considering the consistent cash flow and profits, there are still risks for these companies. One reason these cash flow creating companies aren’t priced even higher is regulatory risk.

As these companies grow and expand into more industries, the word “monopoly” is continuously used by those in position to regulate business. Companies like Meta, Alphabet and Amazon have faced higher scrutiny and this doesn’t appear to be subsiding.2

We still recommend investors own these large companies as part of a well-rounded portfolio as they are generating large profits and many are reasonably valued. However, we also recommend holding other companies and sectors that are often out of the limelight.

Railroads are an old business but, as evidenced by the widespread consequences of recent supply chain issues, our economy is still dependent on them and transportation that gets products from point A to point B. Businesses that support travel-related activities are essential for an increasing number of people who have delayed vacations but are now ready to travel again.

Real estate investment trusts, while not performing well during shutdowns and remote work, will provide some protection against inflation and better numbers as many workers slowly return to the office. Many companies in construction and materials may continue to benefit from the $550 billion in American infrastructure over the next five years.3

Today’s current batch of mega-cap companies are successful and will be a force for years to come. However, circumstances will always be changing and it is important to hold assets that represent broad exposure to our economy.


  1. Citywire (9/14/21) — Just five stocks have driven a third of recent S&P 500 returns
  2. TheStreet (1/25/22) — Here’s what big tech regulation might look like
  3. CNN (11/15/21) — Here’s what’s in the bipartisan infrastructure package

The S&P 500® Index is regarded as the best single gauge of large-cap U.S. equities. There is over USD 9.9 trillion indexed or benchmarked to the index. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

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