Carrying-on about the many perils of equity market concentration runs the risk of eliciting exhausted eye rolls from shrewd market participants.

If I weren’t the guy carrying-on, I’d be the guy rolling his eyes.

Espousing a “stocks are doomed because the rally’s top-heavy” narrative is a tried and true method for generating applause among two cohorts:

1. People who, were they born a generation or two earlier, would’ve read tabloids in the grocery store checkout line
2. Committed bears pining for 2000, one of the precious few times they were right in predicting a crash

It’s no coincidence that the musings of committed bears are a primary source of traffic generation for tabloid-style market news in the internet era.

That’s not to say there’s no merit to the idea that market concentration, particularly when extreme, can be a warning sign. Note the emphasis. A lot of things “can” be “a” warning sign of something bad. Heavy coughing can be a warning sign of lung cancer, for example. But only the most neurotic of hypochondriacs would convince themselves that a bout of heavy coughing is a sure sign of terminal illness.

Market concentration’s a lot like stretched valuations in being useful as a barometer of the prevailing market zeitgeist but not especially helpful as a trading tool. Lofty multiples may be a good predictor of longer-term returns (buying when valuations are rich is a good way to stack the odds against yourself) but they’re notoriously tricky as a market timing device.

With that out of the way, allow me to highlight the visual below which, while woefully short in the originality department, nevertheless speaks just as loudly to the character of large-cap equity benchmarks in 2024 as it has every other time you’ve seen it over the past six months.

The point, as always, is to benchmark the current “concentration bubble” (if you like) against the 2020 stay-at-home bonanza, the 2021 “everything bubble” and the dot-com boom/bust.

As BofA’s Michael Hartnett marveled, the top 10 US stocks now comprise nearly 35% of market cap, while the top 10 global stocks are nearly a quarter of the 2,841-constituent MSCI all-country index.

This is mostly a function of the Magnificent 7, and although some high-profile, top-down strategists (including, by the way, Hartnett’s celebrity colleague Savita Subramanian) expect earnings growth for the so-called “S&P 493” to catch up to the mega-caps later this year, the risk of an existential concentration spiral is under-appreciated in my view.

“Risk” in that context doesn’t have to mean a selloff. In fact, it could mean just the opposite. The larger the mega-caps get, the more pronounced their post-earnings/post-catalyst rallies are becoming, not necessarily in percentage terms, but in market-cap terms.

The familiar figure above underscores the point. Huge value creation events are now par for the course.

In February alone, there were two such events. Meta set a record with a one-day surge of almost $200 billion, only to see Nvidia raise the bar with a $277 billion gain just a few weeks later.

This was already a bit of a perpetual motion machine amid the epochal active-to-passive shift: The biggest names gather more assets as a mechanical matter of course in the era of pervasive indexing.

In the event the AI narrative continues to drive the same handful of mega-caps higher between reports, quarter-trillion dollar moves around earnings could become routine.

If it gets to the point where a mega-cap beat and raise is good for, say, half a trillion (or a guide down risks a $400 billion wipeout), everything else becomes more or less meaningless in a lot of important respects. It’s not clear where we’d go from there in terms of strategy and analysis.

If the end game is such an existential market moment, I suppose it’s only fitting: This is, after all, a rally predicated on a suicide mission to realize The Singularity.