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Stock market concentration has increased dramatically, according to the Goldman Sachs portfolio strategy research team.
This has happened three ways: “the rise in the share of the US equity market in the world, the rise in the share of the technology sector, and the rise in the dominance of the biggest companies in most regions,” Chief Global Equity Strategist Peter Oppenheimer wrote in a note.
“While high stock market concentration may be a sign of a bubble, it does not necessarily mean there is one. For example, when Japan’s stock market briefly became the world’s largest, and reached a P/E of 67x, the biggest companies in the index were banks, but the market was not particularly concentrated,” Oppenheimer said.
“Furthermore, while the biggest stocks in the US equity market are much bigger today as a share of the market compared with the stock market bubble of 2000, current valuations are much lower than have been typical in other recent bubble periods, stretching back to the Nifty 50 era of the early 1970s, the Japanese bubble in the late 1980s, and indeed the technology bubble in 2000,” he said.
Comparing valuations using 24-month forward P/E:
Mag 7
- Microsoft (MSFT), market weight 7%, P/E 27.2
- Apple (AAPL) 6%, 22.8
- Nvidia (NVDA) 5.3%, 31.1
- Amazon (AMZN) 4.2%, 31.1
- Alphabet (GOOG) (GOOGL), 3.6%, 16.7
- Meta Platforms (META) 2.6%, 21.4
- Tesla (TSLA) 1.3%, 40.3
- Aggregate 30.2%, 25
2000 Tech Bubble Leaders
- Microsoft (MSFT) 4.5%, 3.2
- Cisco Systems (CSCO) 4.2%, 101.7
- Intel (INTC) 3.6%, 42.1
- Oracle (ORCL) 1.9%, 19.0
- IBM (IBM) 1.7%, 23.5
- Lucent (LU-OLD) 1.6%, 37.9
- Nortel Networks (NT) 1.5%, 86.4
- Aggregate 19%, 52.0
1989 Japan Financial Bubble
- Nippon Telegraph and Telephone 6.9%, 100.1
- Industrial Bank Of Japan 4.6%, 154.2
- Sumitomo Mitsui Banking 3.4%, 49.2
- Bank of Tokyo-Mitsubishi 3.3%, 49.8
- Fuji Bank 3.1%, 52.8
- Dai-Ichi Kangyo Bank 2.9%, 44.0
- Sakura Bank 2.8%, 62.1
- Aggregate 27%, 67.0
1973 Nifty 50
- IBM (IBM) 7.1%, 35.5
- Eastman Kodak (KODK) 3.6%, 43.5
- Sears Roebuck 2.7%, 29.2
- General Electric (GE) 2.0%, 23.4
- Xerox (XRX) 1.8%, 45.8
- 3M (MMM) 1.4%, 39.0
- Procter & Gamble (PG) 1.4%, 29.8
- Aggregate 19.9%, 34.3
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