We have previously written about the concentration in the US market, with many Quick Bites highlighting the so-called “Magnificent 7”. But just how concentrated is the US market when compared with other countries, and with earlier periods in US financial history? We show a series of interesting charts below that touch on these and associated issues.
Importantly, we should keep in mind that America’s financial markets are very large, with US stocks now accounting for more than 60% of the MSCI World Index. So, US stock concentration – and what it might signify – is an important matter for all of us.
Firstly, the US equity market hasn’t been this large a component of global equity markets since 2004.

Source: FT, Goldman Sachs
Secondly, the top ten stocks have not made up such a large portion of the S&P 500 since at least 1970 when their chart series began.

Source: FT, Goldman Sachs
Third, sector concentration within the US hasn’t been this high since the 1950s.

Source: FT, Goldman Sachs
It is noteworthy that high levels of sector concentration are not that unusual for US stocks. It has all happened before, whether in finance and real estate, transport or energy & materials.
As Goldman Sachs’ Peter Oppenheimer writes:
“Over the past 200 years, the biggest industry represented in the stock market at each point in time has reflected the major driver of economic growth. The Technology sector is about the same size as the Energy sector was at its height in the mid-1950s. It remains smaller in the index than both Transport (which dominated in the 20th century) or finance and real estate which drove the dominant part of the equity market in the 19th century.”
So, are we in some kind of bubble?
Not according to Goldman Sachs, and we agree. While valuations are high, they’re not “bubble high”. Japanese stocks traded on a price-to-earnings (P/E) of 67x in 1990. The Nifty 50 traded on a P/E of 34x in 1973. The leading seven tech stocks traded on a 24-month forward P/E of 52x in 2000, more than double today’s Magnificent 7 (on 25x). This is despite the Mag 7’s better return on equity (ROE), net income margins, and stronger balance sheets.
In conclusion, it’s always good to remain reasonably cautious, and not get too carried away. On the other hand, we still expect markets to be higher than current levels in a year’s time.
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