Has the rise of the US stock market this year relied solely on companies like Apple and Microsoft? Should we be concerned about the future?

The rebound of the S&P 500 index in 2023 is led by large technology stocks, which have historically high weights in the index. This has raised concerns about the sustainability of the stock market rebound.

After falling 19.4% last year, the S&P 500 has risen more than 7% so far this year.

Ross Mayfield, an investment strategy analyst at Baird, said that the top 10 stocks by market capitalization account for 29% of the index's weight and have contributed about 70% to the rise so far this year.

He observed that seven of the top ten are "large technology" stocks, including the five big tech stocks such as Apple. Just Apple and Microsoft alone account for about 14% of the total market value of the S&P 500 index.

Mayfield pointed out that this is worrying for investors, "because, in general, a 'small' market breadth (i.e., fewer stocks rising) is seen as a sign of fragility, which raises doubts about the sustainability of the rebound."

He wrote that this may prove to be true, but there are also reasons to believe that it may not be a big deal.

Why? Mayfield said that first, unlike the dot-com bubble of the late 1990s, these tech giants have largely generated actual earnings and strong cash flows.

Second, it is not uncommon for certain sectors to be leaders. In fact, this is difficult to avoid in an index weighted by market capitalization.

Mayfield said that this structure is dynamic, "rewarding recent winners, punishing recent losers, and ultimately reflecting the market's momentum through weightings."

Mayfield said that in the past 40 years, the weight of the top 10 stocks in the S&P 500 index has rarely been less than 20%. He acknowledged that today's market is more concentrated than before, which increases risk, but he pointed out that only Microsoft and Apple are far beyond the norm.

What does the high concentration on tech giants mean for the future? Obviously, not much.

Mayfield cited a chart from Goldman Sachs that said, " This is not a useful indicator for predicting future returns." The chart shows that a highly concentrated stock market does not necessarily mean weaker future returns.

He said that, in fact, it doesn't mean anything at all. " Of course,"