The Market Hit a Record. Most Stocks Didn't.

How index funds actually work

Most index funds that track the S&P 500 or the Nasdaq use something called market-cap weighting. That's a fancy way of saying the bigger the company, the more of your money goes into it.

"Market cap" is the total value of a company's stock. A company worth $5 trillion gets a much bigger slice of the fund than a company worth $50 billion.

So when you put $1,000 into an S&P 500 index fund, you don't get $2 in each of 500 companies. You get a lot of the biggest companies and a little of the smallest ones.

There's a subtle effect built into that. When a big company's stock goes up, it gets an even bigger share of the index. So the fund automatically owns more of whatever has been rising. That works great when the biggest companies keep winning. It cuts the other way if they stumble.

In plain terms: a cap-weighted index fund is diversified across hundreds of companies, but it's not evenly diversified. A handful of giants do a lot of the steering.

How concentrated the market is right now

Here's the number that surprises people. As of September 21, the 10 largest companies in the S&P 500 made up about 37.8% of the entire index. The single largest company alone was about 8.1%.

For perspective, the top 10 companies hovered around 18% to 23% of the index between 1990 and 2015. So the share of the market held by the very biggest companies has roughly doubled in about a decade.

That means when you buy "the market" through an S&P 500 fund, more than a third of your money is riding on ten companies. Many of them are large technology and AI-related businesses.

Why the market got so concentrated

There are a few reasons, and they're not all bad.

The biggest companies have been very profitable

A lot of the largest companies have built dominant businesses and kept the profits from them. Authers points out that profits have increasingly gathered in a small group of leaders. When a company's earnings grow fast, its stock price tends to follow.

The AI boom

A lot of the recent gains have come from companies tied to artificial intelligence: chipmakers, cloud computing, and the tech giants spending heavily to build AI systems. Since late 2022, the standard cap-weighted Nasdaq 100 has beaten its equal-weighted version by a wide margin, according to Authers. The equal-weighted version gives every company the same share, so it's a better picture of how the "average" stock did.

Money flowing into index funds

As more people invest through index funds, more money flows into the biggest companies automatically, because that's how the funds are built. Some argue this reinforces the trend.

Why some people are worried

Here's where I want to be careful, because this is the kind of topic that brings out a lot of scary predictions.

Prices have run ahead of profits

In 2025, the top 10 stocks made up about 41% of the S&P 500's weight but were expected to produce only about 32% of its earnings, according to RBC Wealth Management. That gap has widened since 2015. In other words, investors are paying a premium for the biggest companies, betting their growth continues.

History has a few uncomfortable comparisons

Periods where the biggest stocks beat the average stock for a long stretch have been unusual. Authers notes that the most similar episode was the late 1990s, during the dot-com boom. That didn't end well for many of the leaders of that era.

He also cited an analyst who found only two other days in history where the S&P 500 rose at least 1% to within 1% of a record, while more of its stocks hit new lows than new highs: in July 1929 and December 1999. Both came a few months before major market collapses.

Now, here's the important part. That's two data points. As Authers himself says, the sample is far too small to prove anything. Scary comparisons get a lot of clicks. They're not forecasts.

Most of the time, smaller companies have done better

Over long periods, smaller companies have tended to outperform the biggest ones. From 2003 through 2022, the equal-weighted S&P 500 actually beat the standard cap-weighted version by roughly 1.5% a year, according to RBC. That relationship broke down starting in 2023, as the largest companies surged.

Historically, the largest stock in the index hasn't always stayed on top. Companies that were once the biggest in America, like IBM and General Electric, eventually gave up that spot.

Why some people aren't worried

To be fair, there's another side.

The leaders are real businesses. Unlike some of the dot-com companies of the late 1990s, many of today's largest companies have huge profits, not just big promises.

Breadth can return without a crash. Authers makes this point too. The market can become less concentrated because the rest of the stocks catch up, not only because the leaders fall.

Concentration has been rising for years. People have been warning about it for a while, and the biggest companies have kept delivering. Timing a reversal has been a losing game so far.

I'm not going to tell you which side is right. Nobody knows when, or whether, this trend reverses.

What this means for your retirement accounts

This is the practical part. You don't need a view on AI or the dot-com comparison to do something useful here.

Know what's inside your funds

A lot of people own an S&P 500 fund or a target-date fund in their 457 plan or the FRS Investment Plan without knowing what's actually in it. Every fund publishes its top holdings. Look up your fund's top 10 holdings and what percentage of the fund they make up.

If you see the same big names showing up again and again across your funds, you may be more concentrated than you realized.

Look across all your accounts, not just one

Concentration can sneak up across accounts. Let's say you have an S&P 500 fund in your 457, a large-cap growth fund in an IRA, and a tech-heavy fund you bought on your own. Each one on its own looks diversified. Add them up, and you might have a much bigger bet on the same handful of companies than you ever intended.

Understand what "diversified" means in your plan

Diversification isn't just owning a lot of stocks. It's owning different kinds of investments that don't all move together. That can mean large and small companies, U.S. and international stocks, and bonds or other stable investments alongside stocks. How much of each makes sense depends on your age, your timeline, and how much risk you can handle.

Rebalance on purpose

When one part of your portfolio grows faster than the rest, it takes up a bigger share than you planned. Rebalancing means periodically bringing your mix back to your target. It's a disciplined way to trim what's grown and add to what's lagged, without trying to predict anything.

Some target-date funds rebalance for you automatically. If you pick your own funds, you may need to do it yourself, or set up automatic rebalancing if your plan offers it.

Don't overcorrect

Concentration isn't a reason to sell everything and hide. The biggest companies are big for a reason, and they may keep doing well. The goal isn't to avoid them. It's to make sure you're not unknowingly betting your retirement on a handful of them.

Some investors who are uncomfortable with concentration look at equal-weighted index funds, which give each company in the index the same share. Others add small-company or international funds. Those approaches have their own trade-offs. Equal-weighted funds, for example, have lagged the standard index in recent years precisely because the biggest companies have done so well. There's no free lunch.

How to look up what's in your fund

This takes about ten minutes, and most people have never done it.

Step 1: Find your fund's name. Log in to your 457 plan, your Investment Plan account, your IRA, or wherever you hold investments. Write down the exact name of each fund you own and how much you have in each.

Step 2: Find the fund's fact sheet. Every fund has a fact sheet or holdings page, usually available through your plan's website or the fund company's website. Search for the fund name plus "fact sheet" or "holdings."

Step 3: Look at the top 10 holdings. Most fact sheets list the ten largest holdings and what percentage of the fund each one makes up. Add up those percentages. That tells you how much of the fund is riding on its ten biggest positions.

Step 4: Look at the sector breakdown. The fact sheet usually shows how much of the fund is in technology, health care, financials, and other sectors. If one sector is a very large share, that's worth knowing.

Step 5: Compare across funds. If you own more than one fund, put the top holdings side by side. Do the same company names keep showing up? If so, your overall exposure to those companies is larger than any one fund suggests.

You don't have to act on what you find. But you'll know what you own, and that's the starting point for every good decision after it.

What about target-date funds?

A lot of people in workplace plans own a target-date fund, the kind with a year in the name, like a 2035 or 2045 fund. These funds hold a mix of stock and bond funds and gradually shift toward more bonds as the target year gets closer.

Target-date funds are built to be a one-stop option, and for many people they work well. But they're not immune to market concentration. The stock portion of a target-date fund often includes a broad U.S. stock index fund, which is cap-weighted. So the same big companies that dominate the S&P 500 are likely a meaningful part of the stock side of your target-date fund too.

The bond portion and any international stock portion help spread the risk around. That's part of what makes a target-date fund more balanced than a pure S&P 500 fund. But if you want to know how much of your target-date fund depends on a handful of companies, the fund's holdings report will show it, usually by listing the underlying funds and their largest positions.

One more thing. If you own a target-date fund and also own other stock funds on the side, you may be doubling up on the same exposure without realizing it. Target-date funds are designed to be held on their own. Adding other funds on top can change the mix in ways the fund wasn't built for.

A note for people close to retirement

If you're within a few years of retiring, concentration risk deserves extra attention.

When you're young and adding money every paycheck, a big market drop is painful but survivable. You keep buying at lower prices, and you have decades to recover.

When you're about to start living off your savings, a big drop right at the start of retirement can do lasting damage. If a large part of your money is tied to a small group of stocks that all fall together, the hit can be bigger than you expected.

That's one reason many people shift toward a more balanced mix as they get closer to retirement, with money they'll need in the next few years kept in steadier places. If you're in the FRS Pension Plan, your pension provides a base of guaranteed income that doesn't depend on the market at all, which takes some of this pressure off your other savings. If you're in the Investment Plan, your balance is fully exposed to how your investments perform, so knowing what you own matters even more.

What I'm watching

• Whether the rally broadens. If more stocks start participating, that's a healthier sign than a market carried by a few names.
• Earnings from the biggest companies. Third-quarter earnings season is coming. With so much of the market riding on a few companies, their results carry extra weight.
• Interest rates. The 10-year Treasury is at its highest level since 2007. Higher rates can put pressure on the fastest-growing, most highly valued stocks.
• AI spending. A lot of the leaders' growth depends on continued heavy investment in AI. If that spending slows, it could matter a lot.

What I'm not going to do

I'm not going to tell you the market is about to crash, and I'm not going to tell you the biggest companies will keep winning forever. Both stories are out there, and both are told with a lot of confidence. Neither is knowable.

I'm also not going to tell you to buy or sell any particular fund or stock.

What I will say is this. When it comes down to it, the most useful thing you can do about market concentration isn't predicting when it ends. It's knowing how much of it you're exposed to, and deciding whether that's a bet you actually want to make.

The short version

• The Nasdaq 100 hit a record on September 22, but much of the gain came from a handful of stocks.
• Most index funds are cap-weighted, so the biggest companies get the most money.
• The top 10 S&P 500 companies were about 37.8% of the index as of September 21, roughly double their typical share from 1990 to 2015.
• Critics point to prices running ahead of earnings and uncomfortable historical comparisons. Supporters point to real profits.
• Check your funds' top holdings, look across all your accounts, and rebalance on purpose.

If you'd like a second set of eyes on what's actually inside your 457, Investment Plan, or IRA, and whether it lines up with your timeline, I'm happy to take a look with you.

Frequently asked questions

What does it mean when the stock market is concentrated?

It means a small number of companies make up a large share of a stock index's total value, so their performance drives much of the index's return.

How much of the S&P 500 is in the top 10 stocks?

As of September 21, 2026, the 10 largest companies made up about 37.8% of the S&P 500, with the largest single company at about 8.1%.

Is my index fund diversified?

A broad index fund holds hundreds of companies, but most are cap-weighted, so the largest companies carry the most weight. Checking your fund's top holdings shows how concentrated it is.

What is an equal-weighted index fund?

An equal-weighted fund gives each company in an index roughly the same share, instead of weighting by company size. It reduces concentration in the largest companies but has its own trade-offs, and it has lagged the standard index in recent years.

Does market concentration mean a crash is coming?

Not necessarily. Concentration raises the risk that a few companies can drag the whole index down, but concentration has been rising for years, and the market can also broaden if other stocks catch up. No one can reliably predict a crash.

Educational content only. Not individualized investment, tax, or legal advice. Past performance does not guarantee future results. You cannot invest directly in an index. Company names are mentioned only as examples of index composition and are not recommendations. Benowitz Wealth Management is a brand of Joy Financial Group LLC, a Florida state-registered investment adviser.

Neither Joy Financial Group LLC nor Benowitz Wealth Management is affiliated with, endorsed by, or employed by the Florida Retirement System, the Florida Division of Retirement, the State Board of Administration of Florida, MyFRS, or any government agency. FRS members may obtain free, unbiased guidance from the MyFRS Financial Guidance Line at 1-866-446-9377.