Apple Inc. and Microsoft Corp. have never held more sway over the S&P 500 Index, leaving some investors on edge over the gauge’s increasingly top-heavy nature.

The world’s two most-valuable companies saw their combined weightings in the benchmark jump to a record 14% this week after strong earnings reports from Microsoft and others fueled a rally in technology stocks. When you include Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Nvidia Corp., nearly a quarter of every dollar put into the S&P 500 is now split between just six names.

“It’s concerning to have such concentration in a few names and all those companies are in the very similar tech and communication services sectors,” said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management. “This concentration will drive broader market performance until it doesn’t.”

According to Tejas Dessai, an analyst at Global X ETFs, the growing influence of big tech in major indexes puts passive investors at risk of over exposure. “However, it does help that these businesses are some of the most innovative names in the technology world and none are looking at a secular decline anytime soon,” he said.

Apple and Microsoft alone have added more than $1 trillion in combined market value in 2023, nearly half of the gains for the entire S&P 500.

The world’s biggest technology and internet firms have long dominated the benchmark index, but their statures have diminished in 2022 when soaring interest rates and slowing growth sent valuations tumbling. While the stocks remain well below peak levels, their outperformance this year relative to the market capitalization-weighted index is fueling their rising influence.

The tech giants have benefited from a flight to the perceived safety of their cash-rich balance sheets amid bank turmoil. And they found a new source of momentum this week when Microsoft reported profit and sales that beat Wall Street estimates. Alphabet and Meta also exceeded expectations, helping send the tech-heavy Nasdaq 100 Index up 3.4% for its best two-day advance in nearly three months and spurring optimism for next week’s report from Apple.

The stock gains are pushing valuations to levels that Landsberg describes as extreme. Amazon leads the pack, trading at 38 times projected earnings, followed by Microsoft at 28 times and Apple with a multiple of 27. Alphabet and Meta are trading below 20 times forward earnings, but they are quickly gaining pace.

Given their ever-increasing index weight, some now feel less than comfortable.

“Regardless of which companies dominate an index, the more top-heavy it becomes the more risky it becomes as an investor,” said Dave Grecsek, managing director in investment strategy and research at Aspiriant LLC.

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