Goldman argues 100 years of history proves the tech-heavy stock market can grow.

Goldman Sachs said history shows the tech-heavy stock market may rise. Five of seven market concentration maxima in 100 years have seen equities rise. Only 10 stocks make up 33% of the S&P 500's market valuation and 25% of its earnings.

Don't worry about tech concentration in the stock market—a century of history has shown. Goldman Sachs says the S&P 500 has risen in the year after market concentration peaked for 100 years.

"Investors usually think of elevated concentration as a sign of downside risk, but the S&P 500 rallied more often than it declined in the 12 months after peak concentration," Ben Snider and colleagues said on Friday. In every instance, market laggards rose when frontrunners lost pace, lifting the index.

This supports our view that a 'catch up' by laggards is more likely to interrupt the ongoing Momentum rally than a 'catch down' by the recent market leaders," Snider.

Observers are right that concentration is severe. The paper said that market concentration is at a multi-decade high with 10 stocks accounting for 33% of the S&P 500 market cap and 25% of earnings.

The previous 100 years have seen seven strongly concentrated markets. Five of those seven episodes—including the year after the 2008 crash and the COVID-19 recession—have seen equities rise after concentration peaked. Only in 1973 and 2000, during the Nifty-Fifty boom and dot-com bubble, did equities enter a sustained bear market.

Today's market conduct has drawn similarities to the two eras. Many of the top 10 S&P 500 equities are Magnificent Seven tech firms like Microsoft, Apple, and Nvidia. Some analysts compare Nvidia's rise to Cisco's in 1999, citing tech fever.

But Snider said past periods without market crashes resemble 2024's setup. "Although investors have focused on the comparison between today and the markets in 1973 and 2000, there have been several other examples of extreme equity market concentration during the past century," stated.

In 1964, the macroeconomic backdrop was similar to today (and the dot-com and Nifty-Fifty periods), yet the bull market survived market concentration. "Like in 1973 and 2000, the peak of equity market concentration in 1964 coincided with low unemployment and a strong equity market backdrop," Snider. "But after market concentration peaked in 1964, both share prices and the US economy remained healthy for an extended period."