Concentration Risk in S&P 500 Spurs Interest in Equal-Weight Index Funds

The U.S. stock market faces heightened risks from unprecedented concentration in the S&P 500, where the top 10 stocks now account for nearly 40% of the index's market capitalization. Goldman Sachs strategist David Kostin warns this could lead to depressed returns over the next decade, echoing historical patterns of underperformance following periods of extreme concentration.

Investors are turning to equal-weight index funds as a hedge. The Invesco S&P 500 Revenue ETF and similar products weight constituents by revenue rather than market cap, imposing strict 5% position limits. This approach significantly reduces exposure to mega-cap tech stocks while maintaining broad market participation.

The current market structure creates potential spillover effects across asset classes. As traditional equity markets show signs of stress, digital assets may benefit from capital seeking diversification. Bitcoin's fixed supply and decentralized nature position it as a natural counterbalance to concentrated equity risk.