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The level of Market concentration is reaching historical maximums. As you can see in the chart below, using the S&P500, the weight of the top 10 stocks is going from 25% to 30%, which is the maximum over the last 75 years. When concentration is high and growing, the index performance tends to be positive and high. However, it is a cyclical phenomenon, and when the index broadens the distribution of returns, performance tends to be lower, and it’s usually triggered by the absurd valuations of the top 10 components, or an exogenous factor (or both). When that happens, the transformation from a concentrated market to a broader one tends to happen through a market correction. We’re approaching that point.

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