Nvidia's incredible gains fuel Wall Street's record run.

A rally that has catapulted U.S. shares to record highs relies on red-hot chipmaker Nvidia and a few other major corporations, raising concerns that the market is more dependent on a few businesses.
About 60% of the S&P 500's  total return of more than 12% for the year has come from five businesses with heavy weightings: S&P Dow Jones Indices data revealed Nvidia, Microsoft, Meta Platforms, Alphabet and Amazon.com.

Nvidia, which became the world's second-most valuable firm on Wednesday after a 147% run this year, has contributed about a third of the index's increase.
Their S&P 500 weightings have increased as their share prices have risen, giving them more influence over the index. Bianco Research reported that Microsoft, Apple , Nvidia, and Alphabet made up roughly 24% of the S&P 500 at the end of May, the most in 60 years.

Given their strong earnings, superior competitive positions, and hope to gain from artificial-intelligence developments, many investors believe the businesses' market heft is justified. The concentration of gains in a few powerhouses may threaten indices if some of the major names tremble.
"If these names stop performing well... and we don't see the rest of the market providing support, that could potentially be a source of vulnerability," said Edward Jones senior investment strategist Angelo Kourkafas.
According to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, the S&P 500's top ten stocks had the greatest month-end weight ever at 34.1% in May.

Market concentration concerns have resurfaced recently. The "Magnificent Seven," driving the S&P 500's 24% gain in 2023, were larger corporations that were less vulnerable to economic volatility. Even though a recession did not occur, several equities rose while others stayed tepid.

In the first quarter of 2024, financials, energy and industrials  outpaced the S&P 500, indicating broadening. Even while the broad index rose in the second quarter, those categories fell.
The equal-weight S&P 500, a proxy for the average index stock, gained 4.5% this year, compared to 12% for the index.
"We were all excited about the broadening out of the recovery," said J.P. Morgan Asset Management global market strategist Jack Manley. "It appears to have stalled out, at least in the first half or so of the year."

Nvidia keeps rising. Nvidia's market value topped $3 trillion on Wednesday, surpassing Apple and following just Microsoft.
The stock is up 29% since its spectacular earnings release on May 22, while the S&P 500 is up 0.9%.
"Nvidia itself was supporting the tape," said JonesTrading chief market strategist Michael O'Rourke. "That's a risk because if a correction emerges in that name, you're going to feel it in the market."

Peter Tuz, president of Chase Investment Counsel, said megacaps "are outperforming because the results and outlook are strong," but he added that increases from a wider set of companies reflect economic health.
Others expect the market to expand again in coming months due to S&P 500 earnings growth.
Magnificent Tajinder Dhillon, senior research analyst at LSEG, expects seven earnings to jump 27% in 2024, compared to 7.4% for the S&P 500 excluding those seven, with the difference narrowing.
"That earnings outperformance gap will start to narrow," Kourkafas added. "Investors shouldn't give up on that theme of broadening leadership this year."