Investing Insights The Stock Market Is Ultraconcentrated, and It Could Get Worse. Here’s How to Manage the Risks.
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Oct 17, 2025 Dominic Pappalardo, Chief Multi-Asset Strategist for Morningstar Wealth, discusses the implications of concentration risk in today’s stock market. He explains how a few tech giants are driving market returns, making diversification harder for investors. The conversation highlights the historical context of market concentration and what can cause this trend to shift. Dominic offers insights on how to mitigate risks, advising investors to diversify with small-cap and international stocks to protect their portfolios from potential downturns.
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What Concentration Risk Means
- Concentration risk means a handful of large companies now make up an outsized share of major indices like the S&P 500.
- Dominic Pappalardo warns this shrinks the true diversification investors expect from index funds.
How The Market Became Narrow
- A few mega-cap tech stocks dramatically outperformed post-pandemic, inflating their index weights.
- That performance created both large gains and the risk of outsized losses if tech sentiment reverses.
A Historically Extreme Concentration
- Today's concentration is historically extreme with the top 10 equaling about 40% of the S&P 500.
- Dominic notes the previous high was roughly 25%, making the current level unusual.