The Mega-Cap 7 or 8

There is a narrowness to the US stock market’s “strength” so far in 2023 that warrants attention. Out of the five hundred US companies in the S&P 500 index, if not for seven of them (or eight, if Netflix is included) the index would be down for the year.

These seven or eight companies are all mega-capitalization technology companies: Nvidia (whose chips are currently fueling white-hot artificial intelligence), AppleMicrosoftAmazonMeta (formerly Facebook), Alphabet (parent of Google), Tesla, and the 8th is Netflix (arguably as large and hot as the rest).

A performance statistic states that in the month of May, the 10 largest stocks in the S&P 500 were up 8.9% but the remaining 490 were down 4.3%.* Philosophically, this data could be looked at both positively or negatively for the coming months or year. In the positive sense if the broader 490 companies hold steady or marginally increase in value, then the index hangs in there. In the negative sense, which given current interest rates may be more likely, if the run-up of the 10 largest stocks slows or begins to decline, the index mostly loses its gains for the year.

Still another, more balanced way of managing this situation is to diversify far more broadly than concentrated bets on AI (artificial intelligence), e-commerce, and overall technology. Diversification does not mean giving up exposure to these sectors! But rather not relying on technology – or any given sector – in any given short-term time period for the bulk of gains in a portfolio. Diversification could mean short-term gains may be sacrificed BUT intermediate- and longer-term performance not as disrupted. Volatility and the need for timing precision (timing is very reliant on luck) can also be minimized, not to mention short-term taxable gains.

Diversification comes back to the concepts of asset allocation and the ability to stay invested, without as much anxiety connected to timing and sector bets. There are too many current market issues yet to be resolved: the possibility of recession, the path of interest rates at the Federal Reserve and levels (and cost) of US government borrowing, to name a few. Plus, for the portion of an asset allocation that includes cash, current rates on 6-month and 1-year CDs and US Treasuries (and longer for inflation-adjusted fixed income investing) are attractive. Rates may be attractive enough to soften the blow if the “mega-cap 8” loses their luster in the short term. A long-term investing mindset includes this wider perspective.

*Hardika Singh,, June 4, 2023.


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