In 2023, the S&P 500 index became heavily reliant on 10 companies. Why is this dangerous for the economy?
In 2023, the dynamics of the S&P 500 index became dependent on just 10 largest companies included in the index. This happened in the first quarter when the leading companies provided 90% of the growth to the S&P 500 index. Such a growth percentage in one quarter occurred for the first time in history. Starting from January, the S&P 500 grew by 10%. But without companies like Apple, Microsoft, Nvidia, Alphabet, Amazon, Tesla, and Meta, the indicator would have moved downwards.
This phenomenon also affected the Nasdaq 100, which mainly contains technology companies. This narrowing may have a negative effect on the market. In a healthy economy, the growth of large indexes provides a higher percentage of securities than it does now. Instead, the positive effect for investors only applies to a small number of shares. Economic downturns often followed the concentration of capital in narrow segments. Against this background, concerns remain about the start of a recession in the United States.
This situation has caused concerns among economists from all over the world. Already, one can notice that the market is beginning to collapse, and if large companies continue to hold the main weight within the largest indexes, it may lead to a global economic crisis. This could be caused by the fact that many investors are still investing too much in the same companies. Such an approach may lead to further deterioration of the economic situation in the United States and the world.
The concerns are related to the fact that if large companies fail to maintain the same growth dynamics they possess now, not only the S&P 500 and Nasdaq 100 indexes, but also the economy as a whole will be weakened. Therefore, more and more experts are convinced that it is necessary to diversify their portfolio to reduce investment risks. Currently, many companies included in the S&P 500 list already have a high market capitalization, so it is necessary to look for alternatives, such as investing in small and medium-sized companies.
Investors can also use technical analysis to identify market trends and make a decision on buying or selling stocks. It is also important to monitor political and economic events that may affect the market, such as tax changes, new laws, etc.
The results of the first half of 2023 have led to a significant influence by the top ten participants in the S&P 500 index on its dynamics, which could lead to negative consequences as this phenomenon has often been accompanied by economic downturns in the past. There are also concerns about the beginning of a recession in the US.
Ultimately, investors should understand that the reduction in the number of companies that influence the market could become a problem in the future. However, investors have the opportunity to balance their portfolio and reduce investment risks by investing in different companies and markets. This will not only help them preserve their capital but also earn profits in the future.