Listen to the full episode, here.
Key Points
- The S&P 500 exhibited an extreme level of concentration, with technology and related sectors making up nearly half of the index’s weight. [01:09]
- A small handful of companies (approximately 10) accounted for over 40% of the S&P 500, meaning their performance disproportionately dictated the entire market’s return. [08:48]
- This market concentration was not considered indicative of the overall health or composition of the US economy, where only about one in five employees work for publicly traded companies. [12:00]
- The current market theme was driven by excitement around Artificial Intelligence (AI), which attracted significant investor capital and created a virtuous cycle for a select group of stocks.
- John and Sam noted that such periods of intense concentration and thematic investing were not new, drawing historical parallels to the dot-com bubble, the railroad boom, and other speculative manias. [17:40]
- They argued that for the current outperformance of these mega-cap tech stocks to continue, their weight in the index would have to continue growing, a mathematically challenging proposition for long-term investors. [21:23]
John Norris
(00:00)
Well, hello again, everybody. This is John Norris at Trading Perspectives. As always, we have our good friend, Sam Clement. Sam, say hello.
Sam Clement
Hello, John.
John Norris
How are you doing, Sam?
Sam Clement
I’m doing fantastically. Thank you for asking.
John Norris
And Sam, recently I was thinking about a conversation we had. One of our client advisors showed us the performance of another manager somewhere and compared it to the S&P 500. The returns were just astronomical—I mean, fantastic. Good for them.
However, I didn’t really have to take a look at the underlying holdings of the portfolio to know what they had done. You and I talked about it and said, “Well, I guess they’re overweight in technology—and more importantly, overweight in about maybe five to ten names, if that.” That would pretty much be the reason why they’ve outperformed over the last 12 to 36 months.
Sam Clement
(00:43)
That’s the story with most things. It seems like this year, it’s been a relatively simple storyline.
John Norris
(00:51)
Keep your money invested. Keep your money invested in the names that have worked terribly well, and you’ve done okay.
Now, right now, when you take a look at the S&P 500 as a whole, two economic sectors and ten individual companies comprise roughly 40% of the index. That’s as of October 27, 2025. Go straight to S&P—take a look at it.
This morning, on October 29, I went and pulled some data—strangely enough, although I’m known to do such things—and I went to the SPY Exchange-Traded Fund (ETF) that tracks the S&P 500, one of the biggest ETFs in the world, if not the biggest ETF in the world. I pulled down their holdings, took a look at their sector weights, and while SPY isn’t a perfect proxy for the S&P 500, it’s pretty doggone close.
(01:47)
I’m just going to read off the data for this fund as of this morning, from the website on October 29, 2025.
Information Technology comprises 36.49% of the portfolio; Financials, 12.7%; Consumer Discretionary, 10.3%; Communication Services, 10.3%; Healthcare, 8.9%; Industrials, 8.1%; Consumer Staples, 4.7%; Energy, only 2.8%; Utilities, 2.4%; Real Estate, 1.8%; and Materials, 1.7%.
So, Information Technology—36.5% according to S&P and the SPY ETF. There’s a problem with that. The problem is that right now, Sam, companies like Amazon are classified, if I’m not mistaken, as Consumer Discretionary, and names like Apple and others are classified as Communications.
If I’m not mistaken, I think Apple—no, not Apple, but Meta—
John Norris
(02:52)
Meta is classified as Communication Services. So if you reclassify things, I went to Bloomberg to see how they categorized SPY. Here’s how Bloomberg classified the holdings in the SPY ETF:
Semiconductors, 15.2%; Internet, 14.1%; Software, 11.0%; and Computers, 8.5%.
Lots of numbers here this morning, Sam. But according to Bloomberg, taking a look at the SPY ETF—a proxy for the S&P 500—total technology and communication services, really everything that falls under “InfoTech,” semiconductors, internet, software, computers… together make up 48.7%.
Roughly half the market. Roughly half the market is confined to, for all intents and purposes, one broad economic sector.
Sam, this is massive—massive concentration.
How did we get here?
Sam Clement
(04:00)
Well, the simple answer is it’s been the talk of the market for years. And not just the talk — that’s where the spending’s been. It’s where a lot of the growth has been. So, there are reasons for it.
To me, this is just the latest storyline. The market tends to move in these broad cycles, in my opinion. You get these themes that last for quite some time. Often that’s not abnormal — for the market to grab onto these themes and hold on for a while.
And this is the theme and the focus of the market right now.
John Norris (04:39)
Well, the theme and the focus of the market is certainly in technology — certainly in communication services — and certainly in artificial intelligence.
Now, I’ve got to make a little caveat right now. Sam always loves to make caveats.
The names I’m about to read out — individual names — we own all of them here at Oakworth Capital Bank across our platform in some form or fashion. I will tell you that we’re not necessarily huge holders of all of them, but we do own them in client accounts.
However, we are not a market maker of any stock at any time whatsoever.
What I’m about to relay is not really commentary on the companies themselves, just what their weights in the SPY are and what their sector exposure is.
I’m going to read off the top ten holdings (plus one) in the SPY as of October 29, 2025.
Nvidia, 8.6%; Microsoft, 6.8%; Apple, 6.8%; Amazon, 3.8%; Broadcom, 3.1%; Meta Platforms — also known as Facebook to the old fogies — 2.8%; Alphabet — also known as Google to the old fogies — 2.7%; and that’s Alphabet Class A shares.
Sam Clement (05:46)
So, half of it.
John Norris (05:47)
Yeah, half of it. Tesla, 2.2%. Now, Alphabet Class C shares, 2.2%. And then Berkshire Hathaway, 1.5%.
Those are the top ten.
However, Sam, there are two holdings for the same company, right?
Sam Clement (06:01)
Yeah — that makes up a total of 4.9%.
John Norris (06:03)
So that’s a total — those are nine individual companies, ten individual securities. Make sense? So if we take a look at the next company — that’s JPMorgan at 1.43% of the SPY as of this morning — that means ten companies, ten companies alone, make up 41.9% of the SPY.
Which again is a proxy for the S&P 500, Sam.
It’s pretty fair to say how goes this fistful of companies is kind of how goes the markets.
And interestingly enough, back in the day — back when I was involved in the administration and management of mutual funds and a mutual fund family — there were these buckets.
In order to have a diversified portfolio according to SEC registration, you had something called a “bucket rule.” You couldn’t own stocks that each constituted more than 5% of the portfolio, and combined, they couldn’t make up more than 25% of the total portfolio.
Catch my drift?
Sam Clement (07:12)
Yeah.
John Norris
(07:12)
So you couldn’t have, say, four stocks that each represent 7% — because that would be 28% of the portfolio. Then you would fail. You would no longer be a diversified portfolio. You’d have to classify your portfolio as non-diversified.
It’s nerdy stuff — I’m a nerd.
Sam Clement (07:31)
That is getting into the weeds.
John Norris (07:32)
I tell you that because, ladies and gentlemen, boys and girls of all ages — we’re not that far away from just good old-fashioned S&P index funds being technically non-diversified portfolios.
John Norris
(07:47)
Not there yet — they’re still barely falling underneath that bucket.
If that rule’s still in place — and I have no reason to think that it isn’t — it’s pretty fair to say how goes a fistful of names in the huge U.S. economy is how goes your investment portfolio, at least over the last 12, 24, and 36 months.
Sam Clement (08:09)
Well, that’s just the math of it, right? If you see some of these extremely large companies move a few percentage points, that’s very easily hundreds of billions of dollars in market cap.
John Norris
(08:21)
But is Nvidia now like $5 trillion?
Sam Clement
(08:23)
Something crazy, yeah. It crossed over $5 trillion recently. So small moves percentage-wise are big moves in market capitalization. And so, just mathematically speaking, it becomes easier and easier for one name or a handful of names to offset a large swath of other names within an index — using the S&P 500 index as an example. We’ve started to see it. We’ve seen days where most names in the S&P are down — and the S&P 500 is up for the day.
And again, it makes sense when you look at the weightings of it and how little of a percentage move it could take in a few names to offset really everything else. We saw it — I believe it was Monday, one of the days earlier this week — where it was the worst breadth since I could track it back to the 1990s, where over 380 names in the S&P 500 were down and the S&P was up.
So “breadth” is a term talked about a lot — that’s how widespread a movement is. You tend to want to see a lot of names contributing to it.
John Norris (09:31)
Listen — on a day that the market’s up, you’d love to see 500 names be up, not ten names be up and everything else sideways or down. Because that’s not truly indicative, in my estimation, of the true health of the U.S. economy. But you’re right — you kind of touched on it. Investors love sizzle. They love it. Sizzle often sells. And so, I don’t think there’s anyone out there that would debate that AI is really cool. I don’t think anyone would debate that the advancements we’ve made in technology — really this century, but increasingly over the last five years — are astronomical, exponential, whatever adjective you want to throw at it.
So, of course, that’s where the absolute growth is going to be — or that’s what it seems. It would seem as though that’s where the growth is going to be. And so investors want to plow into where they think the growth is going to be. They want to skate to where the puck is going to be, not where it is.
When the money flows in, stocks go up, and then you get this virtuous — if you want to call it that — cycle, sort of a fear-of-missing-out type deal. Until you get to a point where all of a sudden, you get to where technology is close to 50% of the overall index, where the top five names in the index make up, what, close to 30% of the overall index. And intuitively speaking, that’s not necessarily truly indicative of the U.S. economy as a whole, is it?
Sam Clement (11:01)
I don’t think it is. But when we’re talking about AI, I believe that part of the issue when people are having this conversation about how impactful AI is — is that very often, people are talking about two different things with AI. I think I fall into what tends to be the less tech-savvy bucket.
People, when they see AI, think of how a ChatGPT or an Anthropic or Claude or one of these is replacing your Google searches — which is how a lot of people are using it. Instead of going to Google to search something, they’re plugging in ChatGPT.
That is not how AI is changing things. It is not through replacing search.
So it seems like the conversation has diverged between two groups of people — one saying “AI is going to change everything,” and another saying “AI is impactful, but it’s not going to change it in the near future.”
To me, it seems like those people in the latter half are viewing it as a search replacement — which, to me, it is not, even though that’s frankly how I use it. But to answer your question, though, I don’t think this is indicative of the overall economy necessarily, and I don’t think the stock market as a whole is necessarily indicative of the overall economy. Depending on which measurement or study you want to look at, on average, only about one in five people employed in the U.S. work for publicly traded companies.
John Norris (12:26)
Yes.
Sam Clement (12:29)
Almost by definition, that’s not the overall economy. If every publicly traded company went bankrupt and fired everybody—again—
John Norris (12:45)
Assuming they are not—
Sam Clement
(12:46)
In a vacuum—
John Norris
(12:47)
Most wire effects and all that stuff—
Sam Clement
(12:48)
In a vacuum, 80 percent of employees are still employed.
John Norris
(12:53)
That’s not the overall economy. That’s not what you’re predicting, are you?
Sam Clement
(12:55)
I’m not predicting.
John Norris (12:56)
Okay, good, good. I’ll tell you though—taking a step back to when Sam was talking about how he’s the type of person who might view AI as just a replacement for Google searches and what have you—I’m of a different camp. I view AI as replacing jobs and doing all kinds of stuff.
As a matter of fact, to those of you listening right now, I’m not even talking right now. Sam’s not talking. These are our avatars talking. I’ll let you think about that one for a second.
In all seriousness, though, at some point that’s probably going to be the case.
Sam Clement (13:29)
Oh, I think it could already be the case.
John Norris (13:30)
And I told my son John, who is soon to be 24 — I guess I need to get him a gift (two weeks from now). But that’s beside the point. I was talking to him one time about AI and I said, “John, it’s really cool. Your great-grandchildren might be able to see me make an economic presentation or actually hear a podcast that I generate.”
He goes, “No way.” I said, “Yeah, it’s really cool—assuming that people a hundred years from now want to hear the sound of my voice or think I add enough value to it, which they won’t—but even so, that’s out there.”
It’s pretty cool. So I don’t think there’s anyone out there who would debate that AI and all the associated technologies we’ve had recently are forever going to change how we conduct our lives and how we conduct business. These things are game changers — economic game changers, personal game changers — not unlike the Industrial Revolution, not unlike the Internet.
So when you see stuff like this, people want in on it.
But as we found with the tech bubble back in 2000, 2001 and 2002, just because the technology might be the growth engine for the future doesn’t always necessarily mean it’s going to be a good investment at any one given time. Correct?
Sam Clement (15:08)
Absolutely. We could point to a thousand examples—
John Norris (15:11)
—you could point to a thousand examples—
Sam Clement
(15:13)
—a thousand themes and—
John Norris (15:14)
Well, listen, I like tulips. Where I’m going with that… I do know where you’re going. Of course, if you listen to economic podcasts, you probably know the old Tulip Mania back in the 1600s in Holland — it was tulips.
Sam Clement (15:27)
The railroads in the U.K.
John Norris (15:29)
Without a doubt — and that’s a perfect example. I think the Internet’s a great example.
Sam Clement (15:34)
Retail in the ’60s with the population boom.
John Norris (15:37)
Utilities in the early part of the 20th century — all of it. Steel companies, Bethlehem Steel, U.S. Steel, all that stuff.
Sam Clement (15:43)
Yeah.
John Norris (15:45)
At one point, there have always been companies that make up a disproportionate share of the overall stock market. That’s where the growth is. But this time right now, it’s technology. It’s AI. It’s going to change our lives. There’s going to be something out there in the future — something else. Maybe we revert back to utilities; I don’t know. I can’t look into the future with crystal clarity — otherwise, I wouldn’t be doing this, right?
So when you take a look at that type of thing, it’s kind of like, this is really cool. It doesn’t mean it’s always going to be the case. At some point, this will cool down, and you have to be careful about this stuff. I guess I have to use a weaker verb — say it should or could or probably will cool down at some point — because right now, people are buying growth. And that’s what people were buying in the dot-com bubble. They were buying growth.
So I’m just going to give this example. Assume there’s a company that’s going to spend—just throwing numbers out here, straw-man style; this is not a specific example of any one individual company. Suppose Company X—you like Company X?
Sam Clement (16:51)
Yeah.
John Norris (16:51)
Sure. They make widgets. Let’s say they spent $10 billion on AI and technology last year—ten billion bucks, a lot of money. This year, they spent $20 billion on it. Right? That’s huge. That’s a hundred-percent gain. Well, next year they’re planning on spending $30 billion. They’re still spending a ton, but that growth rate’s gone from 100 percent down to 50 percent. And the year after that, they’re going to spend $35 billion on AI and tech. That’s still an enormous amount of money, but the growth rates have gone from 100 percent down to 50 percent down to—what is that—maybe 15 percent, roughly 20 percent.
So you’re seeing the growth rates slow even as the absolute investment is enormous. Then you start having investors going, “Okay, growth rates have cooled, earnings have cooled as a result. Maybe I’ll take my marbles and go into something else.”
And that’s kind of what we’ve seen happen in the past. So, to me, it’s a question of not if this is going to happen, but when—and I don’t know.
Sam Clement (17:57)
But that’s what markets do, right?
John Norris
Yes.
Sam Clement
I mean, this isn’t unique. It’s not unique to 2000. Again, we pointed to examples—tulips, maybe not as much; that’s just a pure speculative bubble—but the railroads: if you’ve read about the railroads in the U.K. and the fervor over that in that time period and what was—
John Norris (18:20)
—and for good reason. I mean, my Lord.
Sam Clement (18:23)
But retailers, I mean, with this population boom—there’s always—
John Norris
(18:27)
—or automobiles after World War II.
Sam Clement (18:28)
There are themes that drive markets. Always. There’s always going to be a theme that drives markets. That’s not unique to now; it’s not unique to 2000. That’s always going to be the case, without a doubt. And so you’re just—again—it goes back to what are you paying for? Because, right, these companies are going to change it, but what sort of expectations are priced in? That’s the end of the day for any investment: your expectation, if you’re going to buy something, is that things are going to be greater than what the population as a whole has already priced into it.
John Norris (19:02)
Yes. So when you take a look at that—and this is the story right now—tech, and more importantly AI within tech, but everything seems to be connected right now in a lot of ways. What does this all mean for the future return of the U.S. stock market? I mean, can this go on forever? And if it can’t, what’s coming next? What’s down the pike? Understand, again, we can’t look into the future with crystal clarity. And any actions that you take based on anything you hear are at your own risk.
Sam Clement (19:37)
Look, I’ll answer it with just the math of it and take my opinion out of it.
If you believe that this trend is going to continue as it has, you believe that this concentration in certain areas of the market is going to become bigger and bigger and bigger for it to outperform. That’s the math of it. By definition, “outperform” would mean it becomes a bigger chunk. So that 48.7 percent across those four techie sectors of the market becomes bigger if it continues to outperform.
John Norris (20:08)
So—to me, that’s the bet you make.
Sam Clement (20:11)
Yeah. I’m not even going to say my opinion on that. There are lots of people who do; there are lots of people who don’t. To me, that doesn’t really matter. That’s why you make personal decisions on where you’re investing. But that’s what it is: this is going to become a bigger portion of the market.
John Norris (20:27)
And there’s probably someone out there screaming, saying, “Sam doesn’t get it! It’s where the profits are, not necessarily where the overall economic activity is.” And we get that. I would say ultimately, over time, the two will converge. The short-term profits might be greater than the overall economic activity, but over time, the two converge. And so I hear you on that.
And Sam, kind of along the lines of what you’re saying—and you’re absolutely right on that—in order for this to continue the way it has for the last 12 months, last 24 months, last 36 months, we would have to be sitting there saying that instead of total technology making up 48.7 percent or thereabouts of the market (according to Bloomberg this morning), next year it might be 50, the year after that 52, maybe 53, 54, 55. That means these sectors are going to have to continue to outperform everything else that happens in the U.S. economy for them to continue to outperform.
That means, if that applies, you’re also making the bet that companies like Nvidia make up greater than 8.6 percent of the market moving forward, and Microsoft and Apple greater than 6.8 percent, Amazon greater than 3.8 percent, and so on and so forth. And then we really do get to that diversification problem that I was alluding to earlier in terms of just SEC regulations for 1940 Act funds. And so then we’re going to have a real issue at hand, and we can start talking about how the S&P 500 is no longer diversified. That’s going to throw everyone into a lather. There are all kinds of documents out there saying portfolios need to be diversified and what have you. Maybe that’s what ultimately causes things to become more diversified — just administration and regulations about diversification in public portfolios.
You never know. But I’ll tell you this: at some point, we’ll see a slowdown. It doesn’t mean everything we’re saying here means things have to fall apart. It doesn’t mean that all of a sudden these stocks are going to crater. I mean, these valuations have not gotten ridiculous like they were at the end of the dot-com bubble with some of these things. These companies are generating real profits.
Sam Clement
(22:34)
Earnings have gone up while—
John Norris
(22:36)
—the market’s gone up. This isn’t the same as the dot-com era, where you had companies that weren’t generating any profits and people were throwing money into them with faulty business plans. Companies that we’ve mentioned—every name that we’ve mentioned—they’re making money. These are real companies with real revenue and real profits. So it’s a little bit different story in that regard. However, for me—the way I view the world, and I think the way a lot of people view the world—it’s inconceivable to think that over the next twenty years you won’t have other names within the index.
You won’t have other economic sectors that start to generate a little more money—start to make… who knows, maybe they’ll use AI to make themselves a little more profitable. And then, all of a sudden, they generate more money and the money starts flowing there. It doesn’t mean these things fall apart; it just means other sectors outperform the market that much more. It means Nvidia, instead of beating the benchmark, might underperform the benchmark a little bit. It doesn’t mean it’s going to fall apart.
Is that fair enough?
Sam Clement
Totally agree.
John Norris
So we don’t know exactly when all this will happen. It’s probable, but it’s not a certainty.
The thing about it is, we’ve gotten to a point in the U.S. markets where we’re increasingly less diversified—where a fistful of names determine the overall return of a portfolio. Where Sam and I can pick up someone’s portfolio and their relative return and have a pretty good idea of what they’ve done, what they haven’t done, or the bets they’ve made.
That’s not always been the case, but it has been the case at times in the past. Moving forward, it’s not going to be the case always. I’m talking kind of in riddles, so I’d better shut up here and just rehash what we’ve talked about today. So, Sam—this is a fascinating time in the market’s history.
- We talked a little bit about the future return of the S&P 500—not throwing any numbers out there, but what’s likely going to happen.
- We talked about some historical precedents where we’ve seen this lack of diversification, this sort of mania or bubble, or what have you. And clearly, no one thinks that this is indicative of the overall construction of the U.S. economy.
- We talked about how this has happened and really started off by discussing all the individual weightings and how we’ve gotten here.
It’s fascinating. Love to see it. Love the technology. Don’t think it’s going to last forever—just don’t know when it’s going to stop. What are your thoughts?
Sam Clement (25:04)
Totally agree.
John Norris (25:05)
All right, guys—thank you all so much for listening.
We always love to hear from you all, so if you have any comments or questions, please, by all means, let us know. You can always drop us a line at , or leave us a review on the podcast outlet of your choice. Of course, if you’re interested in reading more or hearing more of what we have to say—or how we think—you can always go to oakworth.com and take a look under the Thought Leadership tab. There you’ll find access and links to all kinds of exciting information, including previous Trading Perspectives podcasts, our weekly blog/newsletter Common Cents, and our weekly magazine and commentary Macro & Market, along with all their individual components. The new magazine is out and available to read—all the sections are out there.
And I’d be remiss if I didn’t mention the fine work that Mac Frasier and the rest of the Advisory Services team over here at Oakworth Capital Bank do. They’ve got good stuff out there too. That being said—Sam, one last chance to say something completely insightful about this topic.
Sam Clement (26:07)
That’s all I’ve got.
John Norris
(26:09)
That’s all I’ve got today too. Y’all take care.
The views expressed are those of the speakers and not necessarily those of Oakworth Capital Bank or its affiliates. This podcast is for informational purposes only, is not intended as investment advice, and should not be relied upon to make financial decisions. Any references to specific securities, asset classes, or strategies are for illustrative purposes only and do not constitute an offer or solicitation. The information discussed reflects conditions as of the date of recording and may not reflect current market developments. The information herein is believed to be reliable but has not been independently verified. Past performance is not indicative of future results. Forward-looking statements are subject to change and may not materialize.
Oakworth Asset Management, LLC (“OAM”) is a registered investment adviser that is owned by Oakworth Capital Bank Inc. (“OCB,” or together with OAM, “Oakworth”), Member FDIC. This podcast may describe the services of both OAM and OCB, but please note that they are two separate entities that provide different services. All investment adviser services including investment management and financial planning are provided by OAM. Because of the ownership relationship and possible involvement by OAM associates with OCB, there exists a conflict of interest to the extent that either party (OAM or OCB) recommends the services of the other. Investments offered by Oakworth OAM are not FDIC insured, may lose value, have no bank guarantee, and are not insured by any federal or state government agency. For additional information about OAM, including its services and fees, visit adviserinfo.sec.gov