📈  Chart of the Week 8/17/2025

By Michael Allison, CFA

Source: Goldman Sachs Global Investment Research

Index Concentration: A Bit of Context

This week’s Chart shows the earnings growth of the 10 largest stocks in the S&P 500 and the earnings growth of the “S&P 490” - the rest of the index. The difference in growth rates between the two groups is quite dramatic, and I think it lends some context to the much discussed concern about index concentration.

The excellent performance of the mega-tech names in recent years has been driven by investors rewarding this outstanding earnings growth, with the expectation that it will continue for quite some time.

In short, they earned it. Literally.

Ten years ago, the so-called Magnificent 7 weren’t nearly as dominant, representing roughly 12% of the index. Today, those names represent 34% of the S&P 500. Source: Motley Fool.

We’ve gone from a relatively diversified index to one where mega-cap tech (and a few others) disproportionately lift the whole market. It’s certainly a concentration risk but also a clarity lens.

When and to what degree these biggest names begin to suffer from the “law of large numbers” and earnings growth slows, is anyone’s guess.

When and to what degree the rest of the market begins to show an acceleration in earnings growth driven by, among other things, lower interest rates and more policy certainty, is also anyone’s guess.

These two things don’t have to happen at the same time, but they could. Or… one could happen and not the other. That too is anyone’s guess.

When it comes to investing, guessing games stink. My philosophy remains the same: stay invested, stay diversified, and stay focused on your long term goals.

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