The 5 Stocks That Rule This Market—and Make Investors Nervous

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Apple

has ruined this market. And it’s the biggest impediment to more gains.

That might seem like an odd thing to say. The

S&P 500 index
rose 1.6% this past week, while the

Dow Jones Industrial Average
gained 0.4% and the

Nasdaq Composite
rose 3%. Apple (ticker: AAPL), which was up 1.5% for the week, certainly did its part.

But at some point in the past couple of weeks, depending on data providers, Apple’s market capitalization, at $2.76 trillion, topped the combined market cap of the entire

Russell 2000
index of small-cap stocks.

And it gets worse. Today’s five biggest stocks—Apple,

Microsoft

(MSFT),

Alphabet

(GOOGL),

Amazon.com

(AMZN), and

Nvidia

(NVDA)—have a combined market cap of about $8.7 trillion, almost 25% of the S&P 500 cap and about 3.2 times the $2.7 trillion Russell cap.

That, says Michael Arone, chief investment strategist at State Street’s U.S. SPDR exchange-traded fund business, is now larger than the five biggest stocks were relative to the Russell 2000 at the peak of the dot-com boom in 1999 and 2000.

This concentration of gains is “contributing to investor anxiety,” says Arone, adding that it’s why investors have had an uneasy feeling about the market rebound since October.

What’s more, those top five stocks have returned an average of 50% in 2023, accounting for roughly 80% of the S&P 500’s 8% gain. The median stock in the index has gained less than 2%, and less than half are trading above their 200-day moving averages—a level that signals a long-term uptrend. It’s a lousy rally.

The top five stocks are also expensive: They trade for an average of 31 times estimated 2024 earnings, while the index trades at 17.4 times earnings.

All of this has investors, who would prefer to see more stocks rallying, nervous. And they should be. One of those big stocks, Nvidia, is scheduled to report fiscal-first-quarter numbers on May 24. Wall Street is looking for adjusted earnings per share of 92 cents, down from $1.30 a year ago. What the earnings report will do to the shares, or the impact it will have on the market, is hard to say. Apple, for instance, reported essentially no quarterly earnings growth in May—and shares have risen about 6% since then, even though 2024 earnings estimates have come down a nickel.

It’s why Arone says, “Embrace the benefits of diversification.” That can include having some cash in high-yielding money-market funds or adding some value stock exposure. Getting more diversified doesn’t have to be hard. The

SPDR Portfolio S&P 500 Value
ETF (SPYV) tracks the performance of value stocks in the S&P 500, and the

Invesco S&P 500 Equal Weight
ETF (RSP) essentially puts the same amount of money into each S&P stock.

Both of those ETFs have a lower price/earnings ratio than the broader S&P 500 and a higher dividend yield. And if investors finally tire of the market’s biggest stocks, they should be a great place to be.

Write to Al Root at allen.root@dowjones.com