Stocktake: Apple nears $3 trillion level as Big Tech dominates

Apple became the first $1 trillion company in the United States in 2018, the first $2 trillion company in 2020, and is now within touching distance of becoming the first company to achieve a market capitalisation of $3 trillion.

It’s an astonishing number. Apple is bigger than the German and UK stock markets. It’s bigger than the British, French and Italian economies.

The tech firm now accounts for 6.75 per cent of the S&P 500 – just below last year's peak, when it briefly accounted for more than 7 per cent of the index. That was the highest index weighting in 40 years, making Apple even more dominant than IBM in the mid-1980s.

However, while today’s weighting is high, it’s not abnormally elevated. Between 1965 and 1985, it was common for the S&P 500’s biggest stock to account for 6 to 9 per cent of the index.

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The potential problem isn't that Apple has grown too large; it's that the S&P 500's other big players are all tech stocks in one form or another. Jim Bianco of Bianco Research recently noted the biggest five companies in the US – Apple, Microsoft, Amazon, Google and Facebook (since squeezed into sixth place by Tesla) – now account for almost a quarter of the index, the largest concentration since the late 1960s.

Crucially, the big five stocks tended in the past to come from different sectors. The biggest five stocks in any one sector never accounted for more than 9 per cent of the overall index, notes Bianco.

Today’s US market is unlike any other in history. This largely reflects structural economic changes, but investors could be forgiven for preferring a more diversified leader board.