FOMO in overdrive as stock market concentration hits all-time high

financialpost.com:

We’re witnessing something in today’s markets that has never happened before. Just 10 stocks make up 34 per cent of the S&P 500 index, beating the previous market concentration high of 33 per cent in 1963. These same 10 companies have now contributed to three quarters of the index’s return so far this year, with just one stock — Nvidia Corp. — accounting for nearly 38 per cent of the gains.

An analysis by Crescat Portfolio Management LLC shows that when Nvidia’s enterprise value peaked on June 18 with a market capitalization of more than US3.3 trillion, it was worth the equivalent of 11.7 per cent of the gross domestic product in the United States, more than twice the level reached by Cisco Systems Inc. during the dot-com bubble of 2000. Add in the nine other top stocks and, combined, they are worth the equivalent of more than 60 per cent of U.S. GDP, also double the level the top 10 reached during the 2000 tech bubble.

Overall, the S&P’s 15 per cent gain through June ranks 21st since 1900, according to Goldman Sachs Group Inc. The good news is that in years when the index was up at least this much at the halfway point, it has been positive 72 per cent of the time for the rest of the year, for a further median gain of almost nine per cent.

Perhaps, then, this market has room to run. But the big question is whether the momentum in megacap stocks will trickle down into the broader market, something that was not the case in the second quarter, when the S&P 500 gained 4.3 per cent (in U.S. dollar terms) while the average stock in the index lost 2.6 per cent. The S&P/TSX composite index lost ground during that period, too, posting a 1.3 per cent price return decline.

For fund managers who benchmark their returns, this