One of the standout features of the current bull market is the surge of big tech stocks driving the next wave of artificial intelligence (AI) innovation. Major players like Nvidia, Microsoft, Alphabet, Amazon, and Meta Platforms have become central figures in this advancement. Together, these companies have contributed to 63% of the S&P 500’s gains in the first half of 2024.
This rapid growth has pushed market concentration to levels not seen since the 1970s. Although these big tech companies have delivered solid earnings and driven stock prices higher, history shows that such market concentration trends eventually reverse. One key indicator suggests that a market shift may be on the horizon.
U.S. Money Supply is Growing Again
According to Khuram Chaudhry, head of European Quantitative Strategy at J.P. Morgan, slowing money supply growth is often tied to rising market concentration in just a few large stocks.
Think of it from a business owner’s perspective: when the money supply is tight, businesses have less access to capital to fuel growth. Larger businesses, however, generate enough cash flow from operations and don’t depend as much on external funding. This dynamic benefits the biggest companies, especially in capital-intensive sectors like AI, which have been driving the current bull market.