Why Apple and Microsoft are the only 2 companies that matter anymore

There have been numerous stories, some written by me, about how a mere seven companies have contributed a huge proportion of the gain in the U.S. stock market this year. Through the first 11 months of the year, those seven companies (Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla) accounted for 62% of the total return for the popular FT Wilshire 5000 total stock market index, which measures the total performance of the entire stock market and rose 19.7% during that time.

But when you look closely, you see that a disproportionate amount of the gain of what I call the “skinny bull market” comes from a mere two stocks. The Dynamic Duo, as the folks at Wilshire Indexes call them, consists of Microsoft and Apple. The Duo accounts for 27% of the 11-month return of the index, which has 3,396 stocks. 

That’s right—a mere two stocks out of almost 3,400 contributed more than a quarter of the Wilshire’s total return (price gains plus reinvested dividends). 

“When you drill down into the Magnificent Seven, you see that it’s all about the Dynamic Duo,” says Philip Lawlor, managing director of market research at Wilshire Indexes.

In November, the Seven were less dominant than usual. But they still accounted for 30% of the Wilshire’s return, which is more than their combined 24.8% weight in the index. 

For the first 11 months of 2023, Microsoft contributed 2.78% of the index’s 19.7% total return and Apple contributed 2.59%. They almost equaled the five other companies’ combined 6.12% contribution. 

What does this mean to you? If you’re an index investor trying to diversify your portfolio, as many are, you’ve got a big stake riding on the performance of a mere two companies. 

A stock’s weight in the Wilshire is based on its market cap, unlike the Dow Jones Industrial Average, in which what matters is the share price. 

Microsoft’s and Apple’s combined Wilshire weight was 12.9% as of Nov. 30, which Lawlor notes is by far the highest two-stock total ever. The previous leading duo, 40 years ago, was IBM and the not-yet-broken-up AT&T, which had a combined weight of 7.1%.

Except for Tesla, the other members of the Seven are technology companies. And tech is a scorching hot sector these days. The electric vehicle maker was up 95% through November, after a horrendous 65% loss last year. It’s still down about a third from its price at year-end 2021. 

The biggest percentage gainer of the Seven—which have a total of eight stocks because Alphabet has two share classes—by far is Nvidia, which more than tripled in the first 11 months of the year. But Nvidia, up 220%, contributed less to the Wilshire’s return than Microsoft (up 59%) and Apple (up 47%). Why is that?

Because Nvidia’s stock market value is less than half of Microsoft’s and Apple’s. So even though it’s risen far more than they have on a percentage basis, the increases of Microsoft’s and Apple’s total market caps exceed Nvidia’s. 

If the Wilshire were equally-weighted, with each stock counting the same, it would have returned only 2% through November, Lawlor says—almost 90% less than its market-weighted return. That shows how important the eight big stocks are. 

One of the more interesting Wilshire stocks these days is Uber, which was up 128% for the year as of Nov. 30. Its weight in the index more than doubled, to 0.25% from 0.12% at the end of last year. 

Uber is roaring upward at least in part because it will join the Standard & Poor’s 500 index on Dec. 18. That means that S&P 500 index funds will have to buy Uber shares. The prospect of index buying has clearly helped drive up Uber’s share price. 

One thing to beware of if you want to ride with Uber’s stock is what’s happened to Tesla stock, which had its best days before joining the S&P in December of 2020. 

Tesla rose an astounding 730% for the first 11-plus months of 2020 before it joined the S&P, at least in part because of the prospect of index funds having to buy it. 

However, this year’s big rise notwithstanding, Tesla has been a dog since becoming part of the index.

Will Uber, which was ranked 75^th in value in the Wilshire as of Nov. 30, keep roaring upward and turn the Magnificent Seven into the Exceptional Eight? That could happen one of these days. However, it will take quite awhile, if it happens at all, because Uber’s weight is only a sixth as much as the least valuable of the Seven stocks. But it will sure be fun to watch.