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Investors Business Daily
Investors Business Daily

Stock Market's $1.6 Trillion One-Day Implosion Reveals A Problem

There's nothing like an inflation scare to wipe out more than a trillion dollars in value in just one day from the S&P 500. But here's the more startling stat: nearly 40% of that massive loss came from just 10 stocks.

The S&P 500's Tuesday drop of 4.3% erased more than 177 points from the world's most popular index. But amazingly, just 2% of the stocks in the S&P 500 accounted for $625 billion, or nearly 40% of the day's market value decline. Losses from Apple, Microsoft and easily racked up the lion's share of market cap declines. Even so, new investors are reluctant to give up many of these stocks.

It's just the latest example of just how concentrated the S&P 500 still is. And concentration is a real risk investors face. "Concentrated positions can make portfolios more susceptible to lightning strikes," said Douglas Sandler, head of global strategy at RiverFront Investment Group in a report.

Looking At S&P 500 Concentration

Here's a number that shows just how few stocks really matter. Just 39 stocks in the S&P 500 accounted for more than half the index' total value, says a 2021 analysis from S&P Dow Jones Indices, the latest available. That's the smallest number of stocks need to make up half the market's total value since 2001, says Howard Silverblatt of S&P Dow Jones Indices.

And much of that's due to the record-breaking role of Apple in the S&P 500. The giant $2.6 trillion-in-value smartphone maker in 2021 made up 6.9% of the S&P 500. That's the most concentrated the index has been in a single stock since 2020, when Apple again, made up 6.8% of its value. No other company has been this important to the S&P 500 since IBM accounted for 6.4% of the index in 1985.

And don't think this is just an issue for other investors to worry about. Apple alone now makes up 7.3% of the S&P 500. And if you add in Microsoft, Amazon, Tesla and Alphabet, just those four companies make up more than 20% of the index.

And that's painfully clear on a day like Tuesday, when just a handful of stocks can erase massive shareholder wealth.

The Giants Of The S&P 500: The Harder They Fall

Apple is the S&P 500's version of a giant that falls hard when the market stumbles. Warren Buffett's favorite stock just Tuesday lost $154 million in market value following a 5.9% fall to 153.84.

Investors keep looking to Apple as the safety trade in the market, at least in tech. The stock is only down 13% this year, which isn't bad next to the S&P 500's 17% drop. Sitting on a pile of $48 billion in just cash and short-term investments, Apple has an ironclad balance sheet able to handle anything the economy throws at it. Additionally, regulators' reluctance to curtail its dominance in smartphones give Apple incredible market power. Analysts think its profit will rise more than 8% this year. They also think the stock will be worth 181.03 in 12 months, up more than 16% from where it is now.

Not Just Apple

It's easy to pinpoint Apple for making the S&P 500 top-heavier than it's been in decades. But it's not alone. Microsoft, too, subtracted nearly $100 billion in market value alone on Tuesday. Additionally, the stock isn't holding up as well as Apple this year, losing more than 25% just this year to 251.99. Analysts are even more bullish on Microsoft than on Apple. They're calling for shares to hit 333.62 in 12 months. If they're right, that's more than 30% upside. Profit is expected to rise more than 10% this year.

Tech is clearly a big driver in the S&P 500. More than half the big market value losses on Tuesday came from information technology or communications services companies. But health care giant, UnitedHealth, is turning into a big factor, too. Its loss Tuesday wiped more than $16 billion from the S&P 500.

If you haven't looked how concentrated your portfolio is, now's the time.

"The risk that a single position could underperform the market by a significant margin — say 15% annually — is not insignificant," Sandler said. "For example, over the last 25 years, on average 27% of the companies comprising the current S&P Composite 1500 Index have underperformed the index by more than 15 percentage points in a single year. In fact, in years like 1998, 1999, and 2020, more than 40% of companies underperformed by that margin."

Biggest S&P 500 Market Value Losers

During Sept. 13 sell off

Company Ticker Market value lost Sept. 13 ($ billions) Sector
Apple -$154.1 Information Technology
Microsoft -$109.3 Information Technology -$98.1 Consumer Discretionary
Alphabet -$91.5 Communication Services
Meta Platforms -$42.5 Communication Services
Tesla -$38.5 Consumer Discretionary
Nvidia -$34.2 Information Technology
Berkshire Hathaway -$20.6 Financials
Home Depot -$20.1 Consumer Discretionary
UnitedHealth Group -$16.2 Health Care
Sources: IBD, S&P Global Market Intelligence
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