A “Top Heavy” Stock Market

There has been much discussion recently about the stock market being “top heavy” because of massive tech companies that have been the leaders of the US market. Stocks like this are affectionately known as FAANG stocks, an acronym for Facebook, Apple, Amazon, Netflix, and Google, and I would be remiss if I didn’t also mention Microsoft in the same breath.


These stocks have performed very well recently and have carried the flag for the US market. This has led people to a few conclusions. First, some are concerned about how large of a portion of the total stock market that these companies occupy. Second, there is a growing sentiment that these massive companies are the only stocks you need to own, that their dominance is “the new normal.”


Dimensional Fund Advisors recently published an article about this with some great visuals, and I’d like to share some key points.


First, it’s not unusual for a handful of companies to occupy a significant portion of the stock market. Below, we can see that the ten largest stocks today make up a little over 20% of the market. The concentration at the top has risen the past few years, but historically it’s been much higher at times. This is nothing new.



The next chart provides more details on the companies themselves. We’ve seen a few mainstays at the top before, such as AT&T, GM, and Exxon. The names may change, but a handful of companies leading the way for a while would be nothing new.


My favorite takeaway from the article is regarding the “big tech companies are the new normal” sentiment. I’d argue it’s always been this way; they may not have had the internet or today’s computing technology, but many of the past companies on this chart were at the forefront of technology and innovation. AT&T modernized telephones and communication. GM did the same thing for the auto industry, as did GE for lighting and electricity.



It’s also interesting to note that many of the companies on the list tend to drop off eventually, even the ones that stayed on top for a long time. For example, as of this writing, GE is the 99th largest company and GE is 160th. Still large, but nowhere near the top ten. This often happens suddenly. It’s very hard for these companies to dominate consistently and many only appear on the list once.


This is why we continue to preach diversification. It does make sense to own these companies, but history tells us they won’t always lead the way. The best way to protect yourself from too much company-specific risk is to own all stocks.


Check out the full article here along with information on the sources and some disclosures.


As always, thanks for reading!

About the Author: Josh Bentz

Josh Bentz, CFP®, Wealth Advisor, helps clients organize and simplify their financial lives by providing comprehensive, personal financial planning. As a Wealth Advisor, Josh provides comprehensive financial planning for clients. He enjoys getting to know individuals and families so he can give specific, meaningful advice. He believes in being a fiduciary and doing what is in the best interest of clients.