QVMM - Market Concentration And The Magnificent Seven: Where Next?
2024-02-21 14:56:00 ET
Summary
- The Magnificent Seven stocks (Microsoft, Apple, Alphabet, Amazon, Nvidia, Meta, and Tesla) have been the largest driver of equity returns in recent years and were again the dominant contributors in 2023, accounting for more than half of the market increase.
- Market concentration is nearing its highest level in more than 50 years, with technology and related sectors now comprising more than 40% of market cap, and the 10 largest companies accounting for more than 30% of the market.
- While the large technology companies undoubtedly possess formidable competitive advantages, prior rotations in membership among the largest companies by market cap suggest that on a relative basis, investors would do well to diversify their exposures.
The Magnificent Seven save the day
Younger investors could be forgiven for not knowing the current Magnificent Seven moniker has its origins in the classic 1960 western film "The Magnificent Seven" starring Steve McQueen and Yul Brynner, which is itself a remake of Akira Kurosawa's "Seven Samurai". In the movie, the farmers in a poor village hire rogue gunfighters to protect them from marauding outlaws who raid their village and take their hard-earned food and provisions....
Market Concentration And The Magnificent Seven: Where Next?