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MarketsJun 12, 2024

Nvidia’s Overwhelming 34.5% Contribution to S&P 500 Returns Is a Sign of Wall Street’s Growing Diversification Problem

Index Weighting

Rhea Lobo

Ever felt like the stock market has its own cool kids’ club? Well, it kind of does, and Nvidia sits at the head of the S&P 500 table, responsible for 34.5% of the index’s market cap increase this year. This lack of diversification poses significant risks for the entire index if Nvidia falters.

Currently, the S&P 500’s top 10 stocks command 33% of its total market value, exceeding the 27% from the 2000 tech bubble.
In the past five years, the S&P 500’s annual total return has hit 16% — with one-third of this growth driven by the top 10 stocks.

No love for diversification: For years, experts have advised diversifying investments to reduce risk. Yet, out of 372 asset-allocation funds (fancy term for diversified investment funds) tracked by Morningstar, only the PIMCO StocksPLUS Long Duration Fund has outperformed the S&P 500 since 2009. This trend of underperformance is causing investors to shift their focus toward large-cap stocks. While diversification might still have a place in the future of investing, it’s currently on a losing streak.

Nvidia’s Overwhelming 34.5% Contribution to S&P 500 Returns Is a Sign of Wall Street’s Growing Diversification Problem

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