Societe Generale
- The top 10 stocks in the S&P 500 account for about 89% of the index's gains this year.
- The market's returns haven't been this lopsided in at least 15 years, according to Societe Generale.
- "This is by far the narrowest performance in post-GFC era if we count years in which S&P 500 has gained at least 10%."
Our chart of the day is from French bank Societe Generale, which highlights that the drivers of the stock market's returns have not been this concentrated since at least 2008. As the chart shows, only a select few names are responsible for the lion's share of this year's gains.
In a note Monday, strategists from the firm pointed out that the top 10 best-performing stocks in the S&P 500 have consistently increased their contribution to the index's overall returns over the last 15 years.
With two months left in 2023, those top companies account for about 89% of the index's performance year-to-date.
"This is by far the narrowest performance in post-GFC era if we count years in which S&P 500 has gained at least 10%," Societe Generale said.
The top names in 2009, by comparison, accounted for about 20% of the S&P 500's annual gains.
Strategists added that the trend aligns with the results of a recent Federal Reserve study that found the median US firm has seen lower profit margins over the last decade, while the largest companies have been able to grow their margins consistently.
But the gap may narrow between the biggest players and the rest of the market, said Richard Bernstein, the chief investment officer of Richard Bernstein Advisors, a $16 billion asset manager. The former Merrill Lynch chief investment strategist said last week that an improving market may pivot investors' interest toward small- and mid-cap stocks.
Because the so-called "Magnificent Seven" stocks — Alphabet, Apple, Amazon, Meta Platforms, Nvidia, Microsoft, and Tesla — have notched outsized gains, lower-profile names are due to see bigger returns in the next decade, Bernstein said.
"Despite profits growth becoming more abundant, investors generally continue to focus on the so-called Magnificent 7 stocks," the market veteran wrote in a note on October 31. "Such narrow leadership seems totally unjustified and their extreme valuations suggest a once-in-a-generation investment opportunity in virtually anything other than those 7 stocks."
"Are there really only seven growth stories in the entire global equity market?" Bernstein said. "And then, the second way to say it is, are these seven really the best growth stories in the entire global equity market? The answer to both of those questions is no."