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Market concentration remains a significant risk as 2025 begins, according to Barclays strategists. The continued dominance of mega-cap Tech limits a broad-based rise in US equities, with Big Tech maintaining an outsized influence on the S&P 500.
By October 2024, the percentage of S&P 500 companies outperforming the index reached a yearly high but dropped in the final months, mainly due to declines in the Materials and Healthcare sectors. Barclays’ US Broadening basket, which tracks a diversified group of stocks, mirrored this trend, peaking in October before losing ground as Big Tech companies sustained their dominance.
In 2024, the top 10 S&P 500 stocks maintained record weightings, disproportionately driving earnings per share (EPS) growth. These companies now account for 29.3% of the index's weight, contributing half of last year’s gains, a slight decrease from 56% in 2023. Nvidia alone was responsible for 5.4% of the S&P 500’s returns.
The Technology, Media, and Telecom (TMT) and Financial sectors outperformed expectations, delivering stronger earnings without relying heavily on valuation multiple expansions, unlike Utilities, Industrials, and Staples. Despite moderate earnings growth, Healthcare experienced valuation compression, which Barclays sees as a reason for optimism in this sector.
Most sectors now trade at stretched multiples compared to their 10-year averages, with Financials and Tech nearing decade-high valuations. Barclays cautions that Big Tech’s growth may slow, but these firms have driven at least half of the S&P 500's price and EPS growth for two consecutive years, underscoring their continued market dominance.
As 2025 unfolds, the impact of concentration risk on equity performance and sector valuations remains a key concern.
