Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

Now that they’ve already taken over our lives, big tech companies are taking over the stock market.

The five biggest U.S. stocks – Apple Inc., Microsoft Corp. Google-parent Alphabet Inc., Amazon.com Inc. and Facebook Inc. – have grown so explosively that they account for nearly 18 per cent of the S&P 500 index by market value, when they make up just 1 per cent of its population. Never before have five companies held such powerful sway over the index, according to Morgan Stanley strategists.

The swelling at the top increasingly matters for regular investors, who have been putting more of their retirement accounts into funds that mimic the S&P 500 and other indexes. The majority of money invested in U.S. stock funds is now in index funds, according to Morningstar, and any US$100 going into an S&P 500 index fund is automatically putting nearly US$18 of it into just those five stocks.

Story continues below advertisement

The trends mean investors are increasingly beholden to the fortunes of five companies. Consider last Thursday, when Microsoft alone accounted for two thirds of S&P 500 index funds’ gains. These tech giants can carry just as much weight on the way down, and that increases risk for investors, particularly when the threat of additional, profit-reducing government regulation is hanging over the industry.

“This doesn’t have to correct itself immediately,” Morgan Stanley strategists wrote in a recent report for investors, but they nevertheless see it as unsustainable.

The most recent time five stocks controlled this much of the S&P 500 was during the tech bubble at the turn of the millennium. That bubble eventually popped, and stocks such as Cisco Systems Inc. and General Electric Co. shrank to become smaller players. Microsoft was also among them, but it has since climbed back to the top.

One difference between this time and the dot-com bubble is that many analysts don’t see prices as grossly over-inflated now. Each of today’s Big Five is producing strong growth even though the global economy has been stuck in a sluggish pace for years. Apple’s earnings per share surged 19 per cent in the in the last three months of 2019 from a year earlier, for example.

Morgan Stanley sees the top 1 per cent loosening its hold on the S&P 500 in one of two ways. The first scenario has investors deciding on their own to move their dollars to less-loved areas of the market, which would be a positive for the overall stock market. The second would be more negative: investors leave once the Big Five show they’re unable to sustain their eye-popping growth.

Until then, the concentration at the top of the S&P 500 puts more pressure on investors to keep their portfolios diversified, said Emily Roland, co-chief investment strategist at John Hancock Investment Management.

One of the tenets of investing is to have a diversified portfolio, where some pieces can zig when others zag in hopes of keeping the overall pot safer. An index fund owning hundreds of stocks may be less diversified than it appears, though, when the five most dominant companies within it can often move in a herd given how much overlap is in their businesses.

Story continues below advertisement

“It takes work, but look at areas that really can help provide that diversification that investors really need right now,” Ms. Roland said. “It sounds so boring, but balanced is beautiful.”

Report an error
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies