Is the Era of Large-Cap Growth Stocks Over?

The current dominance of Apple and Microsoft in the S&P 500 index mimics the reign of IBM and AT&T in the late 1970s, according to Richard Bernstein Advisors.

Illustration by II

Illustration by II

The era of large-cap stocks’ dominance may be over soon — at least according to investment manager Richard Bernstein Advisors.

Only 28 percent of companies in the S&P 500 have managed to outperform the index year-to-date, compared to 59 percent in 2022, 49 percent in 2021, and 36 percent in 2020, according to RBA’s latest research. Between 2007 and May 2023, the median percentage of stocks that have outperformed the S&P 500 index is 48 percent.

“The stock market’s leadership has become extremely narrow, meaning only a small number of stocks are outperforming and contributing to the market’s year-to-date advance,” the report said. “This is clearly extreme and probably unwarranted because the market today is even narrower than during the pandemic in 2020 despite that today’s economy is obviously much healthier than that during the pandemic.”

The report added that Apple and Microsoft now represent almost 15 percent of the market capitalization of the S&P 500 index, the highest percentage held by any two companies in the index since 1978. Back in the late 1970s, it was IBM and AT&T that dominated the index, but they subsequently underperformed the broader market for over a decade. The report suggests that a similar downward trend could hit Apple and Microsoft in the near future.

“Investors unrealistically believed there were essentially only two growth stories in 1978. Of course, that was incorrect, and the stocks’ performance did not recover from those unrealistic expectations,” according to the report. “We strongly doubt investors today could imagine Apple and Microsoft underperforming the broader market for the next 15 years, but 1978’s investors probably felt the same way about IBM and AT&T.”


According to RBA, the stock market has behaved like a “seesaw” in the past several years. On the one side, there are highly speculative large-cap growth stocks, particularly those in sectors like technology, communications, and consumer discretionary. The remainder of the global equity market sits on the other side. The report noted that the side with large-cap growth stocks is “up high in the air right now,” with the Nasdaq 100 significantly outperforming the Russell 2000, which represents the smallest 2000 stocks in the Russell 3000 universe.

RBA is not alone in predicting a reversal of large- and small-cap stocks. Many investors have also argued that the valuation of small-cap stocks is more attractive than that of their larger peers, especially the good-quality ones.

“We do not particularly like the sectors and speculative assets that have become so popular,” the report concluded. “Our view of the world seems very optimistic relative to the implied forecast that only a handful of companies can grow.”