By Gordon Gottsegen
Leaning into a concentrated market may not be a bad move, but be prepared to act quickly
A select number of stocks are leading the market to all-time highs.
Sometimes it can be hard to sit back and be happy that the stock market is at all-time highs. Instead of celebrating, some investors may be waiting for a shoe to drop.
After a steep selloff related to the war in Iran, the S&P 500 has bounced back in a stunning rally that has pushed the index to all-time high after all-time high. The speed of this rally is notable, with the S&P 500 SPX – which is on track Wednesday for its 17th record close of 2026 – running up more than 17% since the March 30 low. That would be the best performance in six years for the index over a similar span of time.
The scope of the rally is notable, too.
The rebound has been primarily led by a relatively small number of large-cap tech companies, which has resulted in an increasingly concentrated stock market and narrow breadth. The S&P 500 gained $9.19 trillion in market cap from March 30 to the May 11 record close, according to Dow Jones Market Data. Of that gain, 62% came from the 10 largest companies by market cap – and 43.8% of that gain came from companies in the semiconductor industry group. Because of this rally, semiconductor stocks SOX now make up over 18% of the S&P 500.
Read: Semiconductor names have never before held this much sway over the stock market. Here’s how much of a problem that could be.
Semiconductor stocks now account for more than 18% of the S&P 500 by weight, a significant jump compared with a decade ago.
The artificial-intelligence trade is the main driver causing investors to pile into semiconductor and tech stocks at such a ferocious pace. As the market gets more concentrated around this trade, it has people drawing comparisons with March 2000, right before the dot-com bubble burst.
Read: The last time semiconductor stocks rose this far this quickly, the dot-com bubble burst
However, that doesn’t necessarily mean the stock market is a bubble waiting to pop.
“A stock market whose rise or fall depends on fewer companies, as opposed to more companies, is not always welcome. But it doesn’t signal anything delicate or ominous about our markets,” said Jed Ellerbroek, a portfolio manager at Argent Capital Management.
“It doesn’t mean that markets are going down in the future,” he said. “That might happen, but it’s not going to be because this market is more concentrated than it has been in the past.”
When the stock market is lifted by a single industry or select group of companies, it means the entire market becomes more reliant on the performance of those companies. If one of those companies is having a bad day, it introduces more volatility into the overall index. But on its own, it doesn’t mean anything negative, Ellerbroek said. He pointed out that many foreign stock markets are much more concentrated than those in the U.S. due to a few global corporations that dominate their local economies.
For the S&P 500, he said this market concentration is just a reflection of the capitalist environment these companies are operating in. Often, it’s “winner takes all” in the tech industry, and large companies can overpower their competitors once they get to a certain market share. This is reflected in the earnings of those companies and in turn, their stock performance.
This dynamic is especially true for AI, since the AI buildout and integration of AI technology will have huge benefits for a few companies. That buildout doesn’t seem to be slowing, which means this market concentration is likely to stick around.
How to invest in concentrated markets
Ellerbroek believes that this market concentration is going to continue, which influences how he approaches his investing. As a portfolio manager, he says that his fund has to be “overweight” in its best ideas in order to beat its benchmark. That means leaning into concentration instead of being scared off by it.
Eddie Ghabour, the chief executive of Key Advisors Wealth Management, said retail investors can also copy an approach that portfolio managers take.
“Retail investors today should be thinking the way institutions do, which is be more active, rotate and don’t be afraid to be concentrated in areas of strength,” Ghabour said.
He said that concentrated markets are nothing new, and narrow breadth has been a feature of the market since 2020. As a result, investors have to “modernize” their portfolio and concentrate in areas that are strong. That doesn’t mean just chasing stocks that have been on a tear. It means identifying underlying themes – like the AI buildout – and investing in the businesses that are benefiting from those themes.
On the flip side, he said that investors also have to act quickly when themes reverse, and know when to exit a position.
“The hardest thing for investors to do is to keep riding your winners and sell your losers,” Ghabour said
That could mean selling when a sector shows weakness with little hope for a turnaround, or knowing when to trim a position.
Increasing a portfolio’s concentration also increases risk. Since levels of risk tolerance vary from investor to investor, it’s important for investors to keep tabs on how concentrated their positions are and what they’re comfortable with.
Chris McMahon, the president of Aquinas Wealth Advisors, suggested that investors rebalance their portfolios every few years, because the outperformance of a few stocks will cause a portfolio to drift toward concentration.
For example, a stockholding that had started out making up 3% of an investor’s portfolio could jump to a 6% weighting if it sees an outsized move higher.
“If any one security is more than 5% of your portfolio, you have to be thinking about de-risking. And if it’s more than 10% of your portfolio, you absolutely should be considering de-risking and reducing that holding,” McMahon said.
This could involve selling some, but not all, of that position, and using the proceeds from that sale to diversify. That could mean investing in index funds outside of the S&P 500 – ones that track small-cap stocks or international markets – or investing in other asset classes, like fixed income.
“Overconcentration is natural when you have this extraordinary, unusual generational change in our economy, but the same principles still apply. It’s important to be diversified, it’s important to have an exit strategy and it’s important to not take undue risk in your portfolio,” he said.
Ken Jimenez contributed.
-Gordon Gottsegen
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05-13-26 1527ET
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