The largest names in the S&P 500 continue to perform the best and their dominance is changing how markets move.

As we wrap up another year, 2025 marked the continuation of a longer-term trend in the market. The 10 largest stocks in the S&P 500 handily beat the S&P Equal Weight Index by just under 15%. The Mega Cap Top 10 (MEGATEN), an equally weighted basket of the ten largest stocks in the S&P 500, has put together three consecutive years of +20% gains. The last time it was able to do this was from 2019-2021 and from 1995-1999 (five years straight) with data going back to 1990. While it’s not the largest sample size, it does show that the last few years have been abnormally good for the mega cap names. Over the last three years, MEGATEN has beaten the SPXEWI by just over 100% for the first time since the 1999-2000 period. That doesn’t mean the current run for the mega caps is over, that is a single data point in our relatively small sample size of market history. However, it is concerning that it is just a handful of names carrying the market higher and their concentration continues to trend higher.

One of the impacts of the higher level of index and performance concentration has been the breakdown in correlations between the mega-caps and the SPXEWI. The rolling three-year correlation between MEGATEN and SPXEWI is near its lowest levels ever - the only time it has been lower was in 1995. The correlation between the two has been declining over the last decade and is now down to 0.66 on a three-year basis. Yes, they’re still correlated, somewhat, but it is much lower than the strong +0.8 correlation the two had for most of the last 30 years. If we look at the one-year rolling correlation, we can begin to see how the longer-term correlation has started to fall. The two recent valleys in the one-year rolling correlation were in July 2021 and July 2024 which both were preceded by positive returns for both indices. The one-year correlation began to rise near the end of 2021 and exploded higher in 2022 as markets tumbled. The most recent rise in correlations between MEGATEN and SPXEWI was due to the tariff induced sell-off. To summarize, MEGATEN and SPXEWI are becoming less correlated in “good times” and more correlated in “bad times.”  The breakdown in correlations will be important to watch moving forward as other asset classes will offer better diversification benefits than simply having exposure to more stocks.