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Seven companies account for 98% of the returns of the FT Wilshire 5000 Index.
Michael M. Santiago/Getty Images
About the author: Alan Sloan is an independent business journalist and a seven-time winner of the Loeb Award, business journalism’s highest honor.
We appear to be in a bull market or about to enter one. But boy, this is one of the thinnest bulls ever, with just seven companies (and eight stocks total) accounting for more than the full 9.65% total return (including price gains and reinvested dividends) that the
S&P 500
had for the first five months of the year. That’s an annualized return of more than 23%, which is very nice.
But without the Select Seven, the S&P fell slightly for the first five months.
And wait, there’s more. As you can see in the table below, those seven companies represent an astonishing 98% of this year’s returns for the entire U.S. stock market of 3,480 companies, as measured by the
FT Wilshire 5000 index
.
| stock | Wilshire Market Weight | Return Contribution |
|---|---|---|
| Apple | 6.88% | 2.04% |
| Microsoft | 5.88% | 1.76% |
| Nvidia | 2.19% | 1.48% |
| Alphabet* | 3.37% | 1.04% |
| Amazon | 2.67% | 0.88% |
| meta | 1.45% | 0.87% |
| Tesla | 1.35% | 0.57% |
| Total | 23.79% | 8.64% |
| Wilshire total | 100% | 8.84% |
Note: Alphabet contains A and C stock combined. Returns through May 31, 2023.
Source: Wilshire Indexes
I use the Wilshire because it’s a much bigger, much broader indicator than the S&P. And it gets much less attention because, unlike the S&P, the Wilshire has not indexed trillions of dollars.
That 98% portion of returns is more than four times the combined index weight at month-end of just under 24%.
And get this: In May, Nvidia, whose weight at the end of the month was just 2.19% of the index, accounted for more than the entirety of the index’s gains. According to stats I got from Wilshire Indexes, Nvidia’s 36% return in May increased the Wilshire by 0.59%, which was higher than the index’s 0.43% return for the month.
What the hell is going on here? And how can we deal with it?
Looking for wisdom and a little context, I spoke and emailed Philip Lawlor, Wilshire’s general manager for market research. I asked Lawlor, who has more than 30 years of experience as an investment strategist and asset manager, what investors can do about the market’s substantial gains being so narrowly focused.
The problem, of course, is that with so few stocks posting so many substantial gains, it’s easy to miss, even if you’re putting your money into this year’s hot areas: digital information and services, and technology. These areas had returns of 31.9% and 39.6% respectively for the first five months of the year, about four times Wilshire’s 8.84% return.
“You could have supported the wrong horses even if you chose the right sector,” Lawlor told me.
That makes it especially hard for active money managers, whose goal is to pick individual stocks that will help them beat the market. Miss Nvidia — this year’s red-hot stock, which returned 159% through May and continued to rise in June when I last checked — and your portfolio will almost certainly have below-market returns.
But for those of us who are retail investors, there are approaches other than hoping we don’t miss out on the market’s hotties.
If broad index funds (my biggest personal stock investments) bore you but this year’s hot market sectors intrigue you, Lawlor says you can buy into exchange-traded technology or semiconductor funds.
Please note that Lawlor is not advising you to do that – he is just offering you options.
With a sector ETF, you can get a piece of stock like
Apple
,
Microsoft
,
And
Nvidia
,
the three hottest major stocks for the year through May, along with other stocks such as
Amazon
,
meta
(formerly Facebook) and
Alphabet
(formerly Google) who could become this week’s hotties. If you choose the right ETF, you might find one that does
Tesla
,
another one of our Select Seven companies.
By going the ETF route, says Lawlor, “you don’t have to pick individual stocks.”
Sure, buying sector ETFs isn’t as much fun as hitting a grand slam with Nvidia. But it reduces the chances of getting your head hurt if the market suddenly sours on Nvidia. Revenues have skyrocketed thanks to the huge share of the market for chips powering artificial intelligence applications.
If the meteoric rise of a handful of huge stocks reminds you of the 1999-2000 Internet bubble, you’re not alone.
At the height of the bubble in March 2000, Lawlor says, the 10 largest stocks accounted for 20.3% of Wilshire. As of May 31, the top ten accounted for 25.9% of the index. That’s some serious concentration.
I don’t know if the lean bull market will come out, or if it will get even leaner. It’s going to be a lot of fun to watch. But it won’t be much fun if you decide to go all in and don’t have the emotional or financial stamina you need when the Skinny Bull turns into a Big Bad Bear.
So enjoy the running of the bulls. But remember that nothing lasts forever in the financial markets.
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