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Most retirement accounts and investment portfolios are designed to track broad stock indices like the S&P 500, but under the hood, there’s much less diversification than imagined.
One chip company, Nvidia, accounts for 7.3% of the S&P 500 market capitalization; the three most expensive companies—Nvidia, Microsoft, and Apple—comprise an unprecedented 21% of the index (chart below since 1980, courtesy of @CharlieBilello), while the top nine most expensive companies—all tech—presently account for 34%.
On top of today’s record company and sector concentration, leveraged equity funds that magnify volatility and downside risk have exploded in popularity (shown below since 2011), reducing market stability for all participants.
Furthermore, margin debt, borrowing against portfolios for spending and other asset buying, has increased more than 40% year-over-year–the fourth such euphoric spike since 1998 (shown below, via Deutsche Bank and ISABELNET.COM).
Kamikaze-style, the stock exposure of US households, pensions, insurance and investment funds has topped 65% of total assets, the highest on record since 1952 (dark blue line below), and surpassing the previous tech bubble top in 2000.
Overall, US equity markets account for more than 50% of the global equity market capitalization (shown below as of February 2025, via thevisualcapitalist.com). This ensures that when US markets implode, losses and liquidation selling go global.
Andrew Ross Sorkin is making the media rounds promoting his new book on the 1929 crash and notes striking similarities with present sentiment, actors, and behaviours.
It was the moment that sent the U.S. into a panic and drew the Roaring 20s to a close. The 1929 Wall Street crash, which led to the Great Depression, was the most devastating financial collapse in history. Andrew Ross Sorkin’s new book focuses on this disaster. The author joins the show to discuss what led to the financial shipwreck and what we can learn from it nearly a century later. Here is a direct video link.
