U.S. equities, and arguably the economy as a whole, have never been more dependent on so few companies. This year's pandemic-driven downturn has only strengthened the five largest U.S. companies: Apple, Microsoft, Amazon, Alphabet and Facebook. The cohort's combined market cap reached $6.4 trillion and has collectively outperformed the broad markets by more than 20 percentage points.
The great divide: The largest stocks are outperforming their smaller peers by historic margins. The S&P 100 has bested its 500 counterpart by more than 5.5 percentage points on a year-over-year basis at points during 2020, while the cap-weighted index has beat the equal-weight index by more than 13 percentage points.
Haves vs. have nots: The $28 trillion valuation of the S&P 500 is at an all-time high, with virtually all upward movement driven by the largest holdings.
Heavy lifting: The S&P 500 weighting of the five stocks rose more than 5 percentage points this year, and the disparity between the average return and the index has never been higher. Amazon.com led the group, up 72.5% through late July, with Alphabet fifth, up 10%.
Why diversify? The five stocks' collective volatility more closely matches that of the index so far in 2020 than it did in the three years prior. The median 90-day volatility for the top five is 3.5 percentage points lower than the broad index so far this year, compared with 12 points higher from 2017 through 2019.