S&P 500 nears four-year bull run as AI concentration grows

The S&P 500 was trading near record levels in the United States on October 9 as its bull market approached a fourth anniversary, Reuters reported. AI spending has helped power the advance, but the ten largest companies now account for about 40% of the index, increasing the wider market’s dependence on a small group of businesses.

October 12 will mark four years since the benchmark’s October 2022 closing low, the starting point used for this rally. The anniversary remains ahead: Reuters’ October 9 report describes an ongoing advance, rather than a completed four-year milestone.

AI spending powers earnings expectations

The rally had delivered a 117% gain, Reuters reported. Carson Group chief market strategist Ryan Detrick ranked it eighth by duration and sixth by performance among bull markets since World War Two. Those are attributed historical calculations, rather than a forecast of how much further stocks can rise.

Definitions vary, but Reuters described a common bull-market threshold as a gain of at least 20% following a decline of at least 20% from a peak. Nationwide chief market strategist Mark Hackett argued that age alone did not determine a rally’s lifespan, telling Reuters: “They don't end of old age; they end from disease.”

Oxford Economics estimated that AI accounted for roughly one-third of recent US economic growth, according to Reuters. Its estimate included direct infrastructure investment and stock-market wealth supporting consumer spending. The report did not specify the measurement period or provide the underlying model, limiting how precisely that estimate can be interpreted.

“The AI theme is the defining feature of this bull market,” Ameriprise chief market strategist Anthony Saglimbene told Reuters. He said technology companies would face increasing pressure to show that their current spending translates into profits as the rally matures.

The largest companies gain more influence

The ten largest companies’ combined weight has risen from about 28% in October 2022 to about 40%, according to J.P. Morgan Asset Management figures cited by Reuters. That gives their performance greater influence over a benchmark whose index provider says covers approximately 80% of available US equity market capitalisation.

S&P Dow Jones Indices describes the S&P 500 as comprising 500 leading companies. Its broad reach makes concentration relevant beyond portfolios of individual AI stocks: holding exposure to the benchmark also means exposure to its increasingly influential largest constituents.

Only technology and communication services among the index’s 11 sectors had outperformed the overall benchmark during the rally, Reuters reported. Communication services includes Alphabet and Meta Platforms, illustrating how the AI theme extends across sector boundaries.

Reuters put Nvidia’s market value at $5.8 trillion, up from $286 billion on October 12, 2022, and described it as the world’s largest company by market capitalisation. Those figures are observations from the October 9 report, rather than subsequently checked live prices.

AI exposure extends beyond US stocks

Separate analysis published by State Street Investment Management on July 13 identified a related concentration problem in emerging markets. Using June-end figures, it put the S&P 500’s top-ten concentration at approximately 36%, compared with roughly 40% for the MSCI Emerging Markets Index.

State Street argued that Asian semiconductor leaders and US technology giants share an AI demand chain, with TSMC supplying chips and Samsung and SK Hynix supplying memory. In its analysis, spreading investments geographically therefore need not remove exposure to the same underlying spending cycle.

The asset manager’s publication is marketing communication, and its June figures are historical context rather than an October market reading. They cannot establish a precise change against Reuters’ newer concentration estimate without aligning dates, constituent treatment and methodology.

Profits remain the test for AI investment

Edward Jones strategist Angelo Kourkafas told Reuters that concentration reflected fundamental strength and earnings outperformance, while creating vulnerability if the dominant investment theme lost favour. Reuters also identified Federal Reserve rate increases, higher Treasury yields and potential volatility before November’s US midterm elections as risks.