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Seven companies make up 98% of the return 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 or about to enter a bull market. But boy, is this one of the weakest bulls of all time, as just seven companies (and eight stocks total) account for more than the 9.65% total return (including stock earnings and dividends reinvested).
S&P 500
had in the first five months of the year. That's an annual return of more than 23%, which is very encouraging.
But excluding the Select Seven, the S&P is down slightly over the first five months.
And wait, there's more. As you can see from the table below, these seven companies represent a staggering 98% of this year's return for the entire US stock market of 3,480 companies, as measured on
FT Wilshire 5000 Index
.
| share | Wilshire market weight | counter 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% |
| In total | 23.79% | 8.64% |
| Wilshire total | 100% | 8.84% |
Note: Alphabet includes A and C shares combined. Return by May 31, 2023.
Source: Wilshire indices
I use the Wilshire because it's a much larger and broader indicator than the S&P. And it gets a lot less attention because the Wilshire doesn't index trillions of dollars like the S&P does.
That 98% share of the return is more than four times the companies' combined index weighting at month-end of just under 24%.
And understand this: In May, Nvidia, whose month-end weight was just 2.19% of the index, was responsible for more than the entire rise in the index. According to stats I obtained from Wilshire Indexes, Nvidia's May return of 36% boosted the Wilshire by 0.59%, beating the index's monthly return of 0.43%.
What the hell is going on here? And how can we deal with it?
Looking for some wisdom and context, I spoke to and emailed Philip Lawlor, Wilshire's Managing Director of Market Research. I asked Lawlor, who has more than 30 years of experience as an investment strategist and money manager, what investors can do about the narrow focus of the market's significant gains.
The problem, of course, is that with so few stocks making such a big gain, it's easy to miss out, even when investing your money in this year's hottest areas: digital information and services, and technology. Those areas returned 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 backed the wrong horses even if you picked the right sector,” Lawlor told me.
That makes things especially difficult for active money managers, whose goal is to pick individual stocks that will help them beat the market. Miss out on Nvidia — this year's red-hot stock, which returned 159% through May and continued to climb in June last time I checked — and your portfolio will almost certainly return below the market average.
But for those of us who are retail investors, there are other approaches than hoping we don't miss picking the market's current trends.
If you're bored of broad-based index funds (my biggest personal stock investments) but intrigued by this year's hot market sectors, Lawlor says you can buy into technology or semiconductor exchange-traded funds.
Please note that Lawlor is not advising you to do this – he is merely offering you options.
A sector ETF allows you to buy a piece of stock
Apple
,
Microsoft
,
And
Nvidia
,
The year's three hottest big stocks through May, along with other stocks like
Amazon
,
Meta
(formerly Facebook) and
alphabet
(formerly Google) who could be hotties this week. If you choose the right ETF, you might find one that does the same
Tesla
,
another of our Select Seven companies.
If you choose to go down the ETF route, Lawlor says, “you don't have to pick individual stocks.”
Sure, buying sector ETFs isn't as fun as a grand slam with Nvidia. But it lessens the chance of getting your head turned when the market suddenly crashes on Nvidia. Profits soared thanks to its huge market share in chips that support artificial intelligence applications.
If the rapid rise of some giant stocks reminds you of the 1999-2000 internet bubble, you're not alone.
At the peak of the bubble in March 2000, Lawlor said the top 10 stocks made up 20.3% of the Wilshire. As of May 31, the top ten accounted for 25.9% of the index. This is serious concentration.
I don't know if the Skinny Bull Market is getting more concrete or if it's getting thinner. It will be a lot of fun to watch. But it won't be much fun if you decide to go all out and don't have the emotional or financial stamina you need when the Skinny Bull turns into a Big Bad Bear.
So have fun with the bull run. But remember, nothing lasts forever in financial markets.
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