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I have always heard about the extent to which the stock market is driven by its top 5 stocks.Turn on the TV and watch Finance Twitter, Or reading any media, some people want to discuss.There have been endless digressions about this: why it is so dangerous and how it ends in a very bad way

spoiler: Every bull market will end in a disastrous defeat.

But I rarely see convincing data to support the claim that only five companies-Apple, Amazon, Google, Facebook, and Microsoft-are driving the entire stock market.

A simple test can help answer this question: How does the rest of the S&P 500 index perform relative to the market capitalization weighted index?

The answer is to completely deny the claim that the market is driven by only 5 stocks:

Standard & Poor’s 500 (SPX) = 26.89%.

Standard & Poor’s 500 (IQX) = 27.48%.

Although the S&P 500 market capitalization weighted index performed well, with an increase of slightly less than 27%, the equal weight index rose slightly by 59 basis points. This is not just a price index. If we look at the total return of the two, the same weight is higher than the upper limit weight: 29.63% vs. 28.71%.

How can this be?

The general answer is that the current market is healthy, with many companies participating extensively. The combination of fiscal and monetary stimulus, near full employment, and strong retail sales has affected many companies in terms of revenue and profits.

In more detail, consider the specific sectors of the S&P 500 index (I use Select Sector SPDR ETF as an easy way to make these comparisons): Consumer staples (XLP) performed well, up 14.3%; this industry (XLI) performed better, rising 19.5%.even Public utilities (XLU) performed well, rising 14.2%.notes Consumer discretionary (XLY) +27.2%, health care (XLV) +24.2%, and Material (XLB) increased by +25.2%, all within one point of the index’s annual closing price.

Except for any big surprises Technology (XLK), which soared 33.7%?

The first surprise is finance (XLF), following technology, an increase of 32.5%.But the biggest surprise must be vitality (XLE), an increase of 46.4% for the year.

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When you hear people say that there are only 5 stocks driving the market, it’s because they don’t look at actual market data, specific S&P industries, or even something as simple as an equal weight S&P index.

This is a widely driven market, with a lot of participation from all industries and many stocks. Historically, this has a very healthy return to the future.

You can also take a look:
The market is okay (Irrelevant investor, December 16, 2021)

S&P 500 Exponential Distribution (Irrelevant investor, December 21, 2021)

Before:
Top 5 stocks: what does it mean? (December 16, 2021)

How to mislead data, big company version (November 12, 2021)

Criticism of concentration index risk is off-basis (August 21, 2020)

Are there too few stocks driving the S&P 500 index? (June 20, 2017)

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