Since October last year, the US stock market has been on a continuous upward trend for over four months, and has repeatedly hit new historical highs since the beginning of this year. However, what market investors cannot ignore is that this round of US stock price rise is driven by the concentration of technology giants led by Nvidia, Microsoft, and other seven giants.
It is easy to recall the history of the Internet foam at the beginning of 2000 when technology stocks were highly concentrated to drive the index up. However, Goldman Sachs concluded through its analysis of the history of the US stock market over the past century that there is no need to worry.
According to Goldman Sachs data, looking back at the past 100 years, the S&P 500 index is likely to continue to rise within a year after reaching its peak in market concentration.
Market concentration has reached its highest level in decades
Observers point out that currently, the concentration of the US stock market appears to have reached its peak: the top 10 stocks account for 33% of the market value of the S&P 500 index and 25% of its returns, with market concentration reaching its highest level in decades.
Goldman Sachs stock strategist Ben Snider's team wrote in a report, "Although investors typically see an increase in concentration as a signal of downside risk, in the past, the S&P 500 index often saw more gains than declines in the 12 months after market concentration reached its peak."
This is because during each period of high market concentration in the past, when market leaders began to lose momentum (i.e. stock market concentration began to decline), the originally laggards in the market often rose, driving the index to continue rising.
Goldman Sachs pointed out that in the past 100 years, there have been 7 instances of high market concentration in the US stock market. In five of these seven events (including the year after the crash in 2008 and the year after the recession of COVID-19), US stocks continued to rise after market concentration peaked.
Not necessarily a replay of the Internet foam
It is hard to ignore that the only exception to the seven highly concentrated market events pointed out by Goldman Sachs is the "Beautiful 50" foam in 1973 and the Internet foam in 2000. In these two situations, the market entered a long-term bear market after the concentration reached its peak.
Today's market has sparked many comparisons with those two eras. The vast majority of the top 10 stocks in the S&P 500 index are technology stocks among the seven giants, including Microsoft, Apple, and Nvidia. As the technology craze has brought investors a huge network foam, some experts have compared the rise of Nvidia with that of Cisco in 1999.
But Snyder said that among the seven highly concentrated markets in the past century, other scenarios that ultimately did not collapse actually have similarities with the current situation.
He said, "Although investors are concerned about the comparison between the current stock market and the stock markets of 1973 and 2000, there are several other examples of extreme concentration in the stock market over the past century."
A typical example is in 1964, when the macroeconomic background in the United States was similar to today, but after market concentration reached its peak, the market continued to rise.
&Amp; Quota; Like in 1973 and 2000, the concentration of the stock market reached its peak in 1964, while the unemployment rate was low and the stock market background was strong; Quota; Schneider said, "But after market concentration reached its peak in 1964, stock prices and the US economy remained healthy for a long time."