Wall Street Media loves a good team name. The ’70s had the “Nifty Fifty”, the 90’s had the “dot-com” craze, and the 2010s were dominated by the FAANG stocks. These collections of high-performing stocks characterized the most popular stock market booms (and occasional busts) of their time.

Today, warnings about “The Magnificent Seven” abound.

The companies included in the “Magnificent Seven” (Apple, Tesla, Meta, Google, Nvidia, Microsoft, and Amazon) have a collective market cap of over $11 trillion. Each of them has contributed heavily (Nvidia in particular, up over 200%) to the S&P 500’s combined return of 16% year to date. 

There’s an argument we read every time a handful of companies lead the pack: “When these stocks drop, it’s going to take the whole market (and investor accounts) down with them”.

However, in the past, this hasn’t been true. Market leadership changes over time as companies adapt to the modern era. Some companies slowly fade away as others grow to meet changing consumer demand.

In the tables below (going back to 1980) you’ll see the S&P 500 is often highly concentrated at the top; the 10 largest companies routinely make up over 20% of the index.

Interestingly, several companies failed to keep their top 10 positions for multiple decades… Yet over this time, the S&P 500 value grew over 40-fold:

The lesson? Concentration has never held back market returns before:

Final thoughts: Stock market breadth has always been more of a myth than reality. Historically, a handful of stocks are responsible for the majority of the overall market’s gain. According to one study: Over the past 90 years, only 86 stocks have accounted for $16 trillion in wealth creation, nearly half of the stock market total.

This is one reason we strongly encourage investors to diversify their stock holdings: You can lower portfolio risk while increasing your chance of owning a piece of one of the next decade’s winners.