I recently gave a presentation to some new colleagues from the Center for Research in Security Prices, an affiliate of the University of Chicago acquired by Morningstar. One of my slides highlighted the top-heavy nature of today’s US stock market. A graph showed that the top 10 stocks represent a bigger chunk of the market than they did during the 1990s internet bubble.

“Why not go back further?” came a question from Alex Poukchanski, CRSP’s Director of Index Analytics. “According to our data, concentration in 2025 surpassed its previous peak of 1932.” He sent me this chart:

Any mention of the 1930s in an investment context raises alarm bells. That’s especially true for me because I’ve just finished Andrew Ross Sorkin’s excellent book 1929 about the stock market crash that triggered the Great Depression. Parallels between the “Roaring ’20s” of the last century and today jump off the page. While no one knows what the future holds, historical perspective is worth considering as investors wrestle with how to position their portfolios in the face of market concentration.

Toward a Historically Top-Heavy Market

Looking at CRSP’s 100 years of US stock market data, concentration levels used to be far higher. From the 1920s to the late 1960s, the weight of the top 10 stocks regularly exceeded one-fourth of overall market value. Then came a multidecade broadening that spanned the bear market of the 1970s and the bull markets of the 1980s and 1990s. It wasn’t until the late 1990s tech, media, and telecom bubble inflated the share prices of behemoths like Intel INTC, Cisco CSCO, and General Electric that the top 10 collectively crossed 20% share. The top-heavy market dynamic persisted for a couple of years beyond the popping of the bubble in March 2000, similar to how the 1932 concentration peak came after the crash of 1929. A broadening trend started in earnest in 2003.

The top 10 didn’t breach 20% of market value again until 2020. In that year, the pandemic accelerated long-running technology trends, and the cohort that started life as FANG (Facebook, Apple AAPL, Netflix NFLX, and Google GOOGL) expanded, going through a series of unwieldy acronyms (FAAMG, MAMAA, BATMAAN). As more companies joined the $1 trillion market cap club, the talk was of “winner take all.”

After a bear market in 2022, the launch of ChatGPT sparked an AI frenzy that has taken concentration to new levels. The era of the “Magnificent Seven” and the “hyperscalers” saw Nvidia’s NVDA market value hit an astounding $5 trillion in late 2025. According to CRSP data, the top 10 reached 37.7% of the US stock market value on Oct. 31, 2025, surpassing the previous month-end peak of May 31, 1932, when the top 10 stocks collectively represented 37.3% of market value.

Have a look at the Top 10 of 1932 and 2025 (using year-end data for the sake of simplicity):

Are We in a New Roaring ’20s?

The 1920s, like the 2020s, was a time of technological transformation. The largest companies of 1932 reflect an era in which automobiles, radio, and telecommunications were going mass market. Electrification was spreading. Then, as now, wealth inequality was high, and businessmen were celebrities.

“But the greatest product,” writes Sorkin about the 1920s, “the one that made all the others possible, was credit. Buy now, pay later. It was a kind of magic.” Not only were Americans buying cars and radios on credit, but also stocks. As for the “Roaring” 2020s, credit card debt has reached record levels. Balances in margin accounts exceeded $1.2 trillion in December 2025, up 36% from December 2024, according to the Financial Industry Regulatory Authority.

It wasn’t called “FOMO” in the 1920s, but speculative excess was everywhere. Sorkin writes of “stock pools,” “bucket shops,” and Wall Street fortunetellers. Today, mobile apps blur the line between investing, sports gambling, and prediction bets.

Just as now, 1920s-era investors had to weigh dueling narratives. “Stock prices have reached what looks like a permanently high plateau,” declared Yale’s Irving Fisher. “A crash is coming,” countered economist Roger Babson. Recently on Morningstar.com, Why the AI Bubble is Poised to Burst appeared next to Nvidia Earnings: No Signs of a Near-Term AI Bubble.

Concentration Doesn’t Necessarily Indicate a Bubble, but It Is a Risk Factor

I’ve pointed out some broad similarities between the 1920s and 2020s, but there are many differences, of course. Market dynamics have changed, and regulation has come a long way. Institutions like the Federal Reserve are far more sophisticated.

Nor is market concentration a good predictor of market stress. Top-heavy markets have produced some phenomenal returns historically. Just look at the past few years. The Morningstar 2026 Global Investment Outlook notes that although the top 10 US stocks’ weight surpassed their internet bubble levels by late 2020, “an investor who stepped aside then would have missed several years of exceptional gains, notwithstanding a brief setback during the inflation-driven selloff of 2022.” The implication is that market-timing is to be avoided.

“Concentration is neither bad nor good, per se,” writes Morningstar’s Manager Research team in a recently published study, Bold Portfolios: Are They Worth Their Risks? Concentration can be great for returns when market leaders are rallying. Believers in efficient markets see concentration as a justified outcome of fundamental strength.

But there’s a flip side. “Even if concentration doesn’t guarantee a downturn, it erodes diversification benefits and makes markets more vulnerable to sentiment reversals,” according to the Morningstar Outlook. My Manager Research colleagues point out that weight in the top 10 is only one dimension of concentration. The share of industries and economic sectors within the market must also be considered.

On that front, sector concentration levels in today’s US stock market have risen, too. The technology sector dominates to an even greater extent than in the late 1990s. And that doesn’t include Alphabet and Meta Platforms META, which are classified to the communication services sector, nor Amazon.com AMZN, a consumer cyclical.

There’s also the matter of thematic concentration. As the hyperscalers up their AI bets, their fortunes become increasingly tied to an uncertain new technology. AI has been the source of significant market volatility. Its capacity for disruption has been on full display lately. Only time will tell how the market rotations we have seen in early 2026 will play out.

As for concentration, it’s worth noting that many funds have had to register as “nondiversified” with the Securities and Exchange Commission. Even broad market index funds may run afoul of diversification requirements defined under the Investment Company Act of 1940. That’s concerning.

What’s an Investor to Do?

As I’ve written before, investors don’t have to think there’s an AI bubble to be concerned about the concentration risk AI has wrought. If you’re uncomfortable with the top-heavy nature of the US stock market, you don’t have to own the market. You can take a selective approach either on your own or by investing with an active stock-picker. Through passive funds, you can equal-weight stocks. You can tilt toward value, dividends, smaller caps, or undervalued, high-quality companies (see the Morningstar Wide Moat Focus Index). Or you can just balance your broad US market exposure with other assets, like international equities, bonds, and more. In other words, you can diversify.

“Diversification is the only free lunch in investing,” goes one of my favorite investment axioms. The future is inherently uncertain. As investors, all we can do is spread our bets and build portfolios to weather different scenarios. So far in 2026, diversification has been a winning strategy.

Portfolio assembly is highly personal. For me, it means stocks, bonds, and commodities, which I mostly own through funds. Within equities, I hold a large slug of international stocks, including those from emerging markets. I maintain exposure to both growth and value, large-, mid-, and small-cap stocks. I haven’t ventured into alternative strategies like long-short, managed futures, or private assets, although I’m not philosophically opposed to any of them.

Are you worried about concentration risk in today’s US stock market? Let me know if you’ve taken any steps to deal: dan.lefkovitz@morningstar.com. I read all my email even if I can’t reply to it all.