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Biggest Cap Stocks in S&P 500 are Behind its Superior Market Performance: Watch Out!

Biggest Cap Stocks in S&P 500 are Behind its Superior Market Performance: Watch Out!  As the chart below shows, more than 18% of the market cap of the S&P 500 is represented by only five stocks. That’s an historic high.  And since those stocks, mainly in the technology sector (Microsoft (MSFT), Apple (AAPL), Amazon (AMZN) Facebook (FB)) are up so much higher than the broader markets composed of smaller cap stocks, the S&P 500 gives a distorted and more optimistic view of the performance of the market as a whole. Historically, over-concentration in one sector is dangerous.  Another way to look at it  is those heavily invested in the S&P 500 (SPX) are betting mostly on the performance of a handful of stocks in one sector. So they may not be as safe as they think they are.

Biggest Cap Stocks in S&P 500 are Behind its Superior Market Performance: Watch Out!
Biggest Cap Stocks in S&P 500 are Behind its Superior Market Performance: Watch Out!

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Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

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