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The surge in technology stocks is creating extreme market concentration effects

June 5, 2023
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The strong headline FT Wilshire returns do not reflect market undercurrents

Exhibit 1 shows the return profile for the FT Wilshire 5000 since the start of last year, showing how it has maintained an upward trajectory from the low reached last October. However, the 8.8% return for 2023 YTD (through to the end of May) belies the picture of a significant bifurcation between the winners and losers materializing below the surface.


Exhibit 1: The FT Wilshire 5000 has continued to trend higher from the October 2022 low

Source: Wilshire. Data as of May 31, 2023

The reality is ex the technology sectors the market has delivered a negative return YTD in 2023

Exhibit 2 compares the profile of the return for the headline FT Wilshire 5000 index YTD (red) versus the return of the FT Wilshire 5000 ex technology sectors (blue). Ex technology, the index has posted a negative -1.2% return YTD and shows a loss in momentum in Q2.

Exhibit 2: YTD the FT Wilshire 5000 Index ex technology sectors has declined -1.2%

Source: Wilshire. Data as of May 31, 2023

The tech sectors have been the only sectors delivering a positive contribution this quarter

Exhibit 3 displays the sector weighted performance contributions to aggregate market returns for both Q2to date (dark blue) and YTD (light blue). The AI fueled rally in the tech sectors has seen them dominate return contributions over both periods.

Exhibit 3: Sector-weighted performance contributions to aggregate market returns

Source: Wilshire. Data as of May 31, 2023

The AI rally is best depicted by the relative performance of the Semiconductor sector.

Exhibit 4 shows the relative performance of the sub sectors within the FT Wilshire 5000 Technology industry group. It clearly shows the significant uplift in the relative performance of the Semiconductor sector in Q2 reflecting the focus on Nvidia Corp as a key AI beneficiary.

Exhibit 4: The Semiconductor sector has been the main AI trade beneficiary

Source: Wilshire. Data as of May 31, 2023

The rally in the tech stocks has created an extremely concentrated market

Exhibit 5 shows the combined weighting of the top 10 stocks within the FT Wilshire 5000 index over three time periods. The current combined weighting of 25.9% exceeds the level reached ten years ago and importantly the 20.3% weighting attained at the peak of the Technology, Media, and Telecoms (TMT) bubble in early 2000.

Exhibit 5: The top 10 stocks weighting now exceeds the TMT peak level.

Source: Wilshire. Data as of May 31, 2023

The greatest dependence on the top 10 stock return contributions this century

Exhibit 6 compares the return contribution generated by the top 10 stocks and compares them to the respective aggregate market returns. In the final year of the TMT bubble the market returned 24.1% with the top 10 stocks contributing 9% (over 1/3rd)of the aggregate return. So far in 2023 the market has returned 8.8% with the top 10 stocks contributing 8.4% (95%) of the aggregate return. In this respect the market is delivering the most concentrated returns this century.

Source: Wilshire. Data as of May 31, 2023

MM-390193 E0723


Philip Lawlor

Managing Director,  Market Research (Benchmarks)

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