The Great Stock Concentration of 2024

I have been fascinated by an event taking place in markets. The other day, I shared the following on X:

“The best performing trade over the last few weeks: long the largest weightings in the S&P 500 and Nasdaq-100 and short everything else. The large caps are simply unstoppable at the moment. Everything else is, especially small caps, are getting smashed under the surface.”

What exactly did I mean by this? Well, the great market statistician, Jason Goepfert, stated it better than I could illustrating how a few stocks are driving the indexes higher while everything else goes down:

“We’ve never seen anything like this before. Once again, a new high in the Nasdaq. Once again, more stocks falling to 52-week lows than rising to 52-week highs on that exchange. That’s 9 days out of the past 20. It blows away any other time period.”

From here, the stats kept rolling in. I was not the only one to see this. My friend Mike Zaccardi tweeted the following about this concentration in a few large winners, each with market caps in the trillions:

“5 stocks account for 60% of S&P 500 return YTD”

This all underscores a few key points:

• The heaviest weights in the index—the largest companies—are outperforming while everything else is dipping or shrinking. The crowded trade now is quite obvious: people are piling into the largest companies and selling or shorting everything else.

• How sustainable is this? How much longer can it go on? These are key questions investors need to consider and position themselves for.

• Some possible scenarios: It might indicate that the largest companies are due for a significant correction after leading markets higher and higher. However, it also suggests that some of the companies that have been sold off could be value plays at this point. It will take hard work and research to uncover these opportunities.

I’ll be watching this closely over the coming months. While the bull market is in tact, at a certain point, a rotation of sorts just simply has to occur. They always do. Although, I am no fool to the following quote:

“The market can stay irrational longer than you can stay solvent.”

Written by Stefan Cheplick, a fintech builder and writer with experience at Stocktwits and TradingView. Background and published work.