Two-Hundred Years of Market Concentration in the United States
Dr. Bryan Taylor, Chief Economist, Global Financial Data
Investors have noticed the increasing concentration of companies at the top of the stock market in the United States. During the past ten years, the Top 10 stocks, the super-cap companies, have doubled their share of the S&P 500. The big are getting bigger and the small are growing at a slower rate. This is because the largest companies in the US stock market, the super-caps, Apple, Microsoft, Alphabet, Nvidia, Amazon, and Meta, all now trillion-dollar companies, have grown faster than the midcap and small cap companies during the past ten years. As technology has spread worldwide and new information technology and biotechnology discoveries have been made and implemented, the super-cap companies are better able to take advantage of these advances than smaller companies. The super-caps can buy up or invest in smaller companies before they even go public. Consequently, the US stock market has become more concentrated, not less, and the US stock market has outperformed the rest of the world. Currently, all but four of the top twenty-five companies in the world are American companies.
Is this trend an anomaly or part of an ongoing pattern in the stock market? To answer this question, we have collected data on the concentration of the US stock market over the past 235 years, from 1790 until the present. Figure 1 shows the market capitalization of the largest company, the five largest companies and the ten largest companies in the United States between 1790 and the present as a share of the entire stock market. Based upon Figure 1 and Figure 3, we have broken down the market concentration of the United States during the past 235 years into seven periods:
1790 to 1840 The Bank of the United States Dominates
1840 to 1875 The Rise of the Railroads
1875 to 1929 The American Commercial Revolution
1929 to 1964 The First Magnificent Seven
1964 to 1993 Free Trade Leads to Global Expansion
1993 to 2014 The Rise of Fall of the Stock Market
2014 to Present Technology Stocks Take Over
Concentration in the US stock market has alternated between periods of greater concentration and less concentration. Concentration generally increased during bull markets and decreased during bear markets. Concentration fell during the periods from 1790 to 1840, 1875 to 1929, and 1964 to 1993 when new industries played a greater role in the stock market. Concentration increased during the periods from 1840 to 1875, 1925 to 1964 and since 2014 when one or two industries and a small number of firms increased their domination of the stock market. We will analyze each of these periods below.
1790 to 1840 The Bank of the United States Dominates
Between 1790 and 1840, the First Bank of the United States (BUS) (1791-1815) and the Second Bank of the United States (1816-1841) were the largest corporations in America. During those fifty years, new companies, mainly banks and insurance companies, issued shares and gradually reduced the Bank of the United States’ share of market capitalization. The market cap of the First BUS was $14.8 million in 1791 and $9.9 million in 1814, but its share of the US stock market declined from 85 percent to 16 percent as the number of companies listed in the United States grew from four to sixty-eight. Full shares in the Second BUS began trading in 1817 and its market cap was $54.25 million or 48 percent of the US stock market, but over time, more companies listed in the United States. By 1838, the market cap of the Second BUS was $48.25 million, but its share of the market cap had dropped to 15 percent as the number of companies listed in the United States increased to 311. As Figure 2 shows, until the 1830s, finance stocks represented over 90% of the total market capitalization of the United States. In the 1830s railroads were built across the country and reduced the share of finance companies in market capitalization.
Figure 1. Market Cap Share of the 1, 5 and 10 Largest Companies in the USA, 1790 to 2023
1840 to 1875 The Rise of the Railroads
During the 1840s, railroads began to dominate the US stock market. In 1845, the Vermont Central Railroad was the largest corporation in the United States, and a transportation company remained the largest company in the United States until Standard Oil took the title in 1884. The creation of the New York Central Railroad, the Pennsylvania Central Railroad, the Chicago Rock Island and Pacific Railway and other railroads that connected Chicago to the rest of the nation in the 1850s created a new concentration of stocks based upon railroads. By the end of the Civil War, all of the ten largest companies in the United States were related to transportation. The ten largest companies represented 20% of the stock market in 1853 and stayed above 20% for most years up until 1911.
After the Civil War ended, the United States built railroads throughout the country to link the nation together. The transcontinental railroad was built between 1863 and 1869 and linked the Atlantic to the Pacific. However, the railroad enabled new industries to come into existence which used the railroad to reach their customers. The telegraph, telephone, typewriter, and other new products created new industries that didn’t exist before. Western Union began trading in 1864, American Express in 1866, and the Pullman Palace Car Co. in 1870. The number of stocks grew dramatically after the Civil War ended, rising from 267 in 1865 to 676 in 1875.
Figure 2. United States Sectors as a share of the Total, 1793 to 2023
1875 to 1929 The American Commercial Revolution
With the Civil War over and railroads now reaching every city in the United States, new industries were able to quickly spread throughout the country. Electricity enabled new industries to be introduced, especially in consumer goods. Electric utilities were established in every city in the country. The number of stocks covered by GFD grew from 676 in 1875 to 2097 in 1895.
Sewing machines, department stores, meatpackers, leather companies, ice companies, typewriters, photography, mail order, automobiles, radios and dozens of other new industries expanded the sectors that served America. This can be seen in Figure 2 if you look at the growth in the different sectors between 1875 and 1925. The concentration in the United States stock market actually increased between 1892 and 1903 as trusts tried to dominate individual industries, but antitrust suits broke up American Tobacco and Standard Oil and put other industries on notice not to limit competition.
By 1900, Standard Oil represented 9% of the US stock market, and the top 10 companies 24%. General Electric went public in 1892, Eastman Kodak in 1896 AT&T in 1900, U.S. Steel in 1901, Sears in 1906 General Motors in 1909, IBM and Woolworth’s in 1911, du Pont in 1915, and RCA in 1919. After Standard Oil was broken up in 1911, thirty-four oil companies were spun off. Standard Oil of New Jersey, California, New York and Indiana were each among the ten largest companies in the United States during the 1920s.
The addition of the coverage of banks and other stocks on regional exchanges in 1894, boosted the number of stocks covered by GFD to 2000 in 1895. By 1928, the expansion of all of these industries, the growth of regional stock exchanges, and new interest in the stock market increased the number of companies to 3825. Consequently, the concentration of the US stock market declined between 1900 and 1929. In 1929, the largest company (AT&T) represented only 3% of the stock market, the top five 10% and the top ten 16%. In 1900, those ratios had been 9%, 17% and 24% respectively. However, in 1929, the stock market crashed and over the next four years, the number of companies fell by 40%, and the concentration of the stock market began to increase once again.
1929 to 1964 The First Magnificent Seven
The wild expansion of the 1920s was followed by the relative stability of the next three decades. Between 1928 and 1933, the number of companies that were listed on the stock market fell from 3825 to 2327, a 40% decline. With fewer companies, the concentration of the stock market increased. While there was a gradual decline in the concentration of companies in the United States between 1875 and 1929, the stock market became more concentrated between 1929 and 1964.
Between 1933 and 1964, there was relatively little change in the stock market. The number of companies on the New York, American and other stock exchanges remained around 2300 during those three decades. Before 1929, the government tried to keep its role in the economy to a minimum and allow the market to allocate resources. After the election of Franklin Roosevelt in 1932, the government intervened directly in the economy to try and avoid another Great Depression. The government ran the economy during World War II and directed the economy after the war was over with.
AT&T, General Motors, IBM, Standard Oil, General Electric, du Pont, and U.S. Steel were the Magnificent Seven of the 1930s, 1940s and 1950s. Those seven companies remained among the ten largest companies during most of those three decades. Their position among the largest companies might change, but those seven companies dominated the American stock market. This is reflected in Figure 2 where you can see that the allocation of the sectors showed only minor changes between 1929 and 1964. This occurred despite the highest returns in the history of the American stock market after World War II.
1964 to 1993 Free Trade Leads to Global Expansion
Three decades of rapid change began around 1964. Just as there had been rapid industrial innovation between 1900 and 1930, there was rapid industrial innovation between 1964 and 2000. Computers, the internet, software, semiconductors, health care, and other technology industries grew dramatically as science discovered new products to deliver to customers. And it wasn’t only in technology that the stock market was transformed. Companies like McDonalds, Disney, Walmart and hundreds of others discovered both new products and new services to provide to Americans. The 1960s was the era of the “Nifty Fifty” when supposedly, you could put your money in any of the top fifty stocks and go on vacation.
Then in the 1970s, the energy crisis hit, and energy companies grew at the expense of the rest of the economy. Stagflation prevented the economy and the stock market from growing. Many of the Nifty Fifty stocks collapsed in price as the price of oil increased tenfold. In 1980, six of the top ten companies by market cap were oil companies while in 1972, only two oil companies had been in the top ten. In 1984, American Telephone and Telegraph was broken up into Ma Bell and the Baby Bells. IBM lost its position as the largest company in the United States in 1989 to ExxonMobil, but Intel and Microsoft were soon part of the Top Ten companies.
The number of companies that are covered by GFD increased from 2367 in 1960 to 8513 in 1996. The share of the Largest, 5 Largest and 10 Largest companies fell from 7%, 18% and 24% in 1960 to 2%, 7.5% and 12% in 1995. The internet and the personal computer replaced the mainframe computer and mobile phones took the place of land lines. Long-distance calls were placed through satellites and not the operator. By 1993, the growth of all these new industries reduced the concentration in the American stock market to the lowest level in its history.
1993 to 2014 The Rise and Fall of the Stock Market
Figure 3 shows the ratio of the Top 10 stocks in the US relative to the Top 500 stocks. The graph covers 150 years of history from 1875 to 2024 and details the periods of concentration and diversification that have occurred in the stock market. One hundred fifty years ago, the Top 10 stocks represented about 30% of the Top 500 stocks by capitalization. This fell to 22% in 1894, rose back to 29% in 1903, then plunged down to 17% in 1925. Concentration generally decreased between 1875 and 1925. The market became more concentrated for the next forty years, peaking in 1963-1964 at 32%, then concentration declined until 1993 when it fell below 16% to its lowest level in history. Concentration increased during the internet bubble of the 1990s, reaching 24% in 2001, then fell back again hitting a new low of 16% in 2014.
Figure 3. Top 10 Stocks as a Percentage of the Top 500 Stocks, 1875 to 2024
The period from 1993 to 2014 was a period of a large increase in the concentration of stocks in the United States. Internet and computer stocks enabled a small number of tech companies to move into the Top 10. Microsoft, IBM, Intel, and Cisco Systems were among the ten largest companies in the United States while Pfizer and Merck were biotech companies in the Top 10. However, in 2008, Microsoft was the only technology company that remained in the Top Ten. Apple joined the Top Ten in 2009 and by 2012, it was the largest corporation in the world.
2014 to Present Technology Stocks Take Over
Since 2014, Apple and Microsoft have been two of the largest corporations in the world. The share of the Top 10 stocks to the Top 500 doubled from 16% in 2014 to 32.5% in 2024. Analysts have noted the increased concentration in the stock market during the past ten years. In 2014, there were only two technology stocks in the Top Ten. In April 2024, the only two companies that were not technology stocks were Berkshire Hathaway which has 40% of its portfolio in Apple stock and Eli Lilly which is a biotech company benefiting from the success of its weight-loss drugs Mounjaro and Zepbound.
Whether analysts are talking about the FANG stocks or the Magnificent Seven, they are focusing on a handful of stocks whose market capitalization is now over $1 trillion each. Apple reached $1 trillion in capitalization in August 2018, $2 trillion in August 2020 and $3 trillion in June 2023. It was one hundred years ago when the market capitalization of a company first reached $1 billion. Will a company be worth $1 quadrillion one hundred years from now? Our descendants will have to answer that question for us.
If you look at the historical pattern, you will see increases in market concentration in the late 1920s, after World War II, and during the late 1990s. Each of these was accompanied by a bull market which was led by a few large stocks; however, when a bear market followed, the concentration declined. In each case, most of the increase in concentration was eliminated during the subsequent bear market. It has only been since 2014 that concentration has increased dramatically. This would lead us to believe that even when the next bear market occurs and concentration is reduced, not all of the increased concentration will be eliminated. The overall trend may be for growth and greater concentration for years to come.
Conclusion
Analysts have noted the increasing market concentration that has occurred during the past ten years. Six companies now have market caps over $1 trillion, and that number is likely to grow. The question is how long will increased market concentration continue. The stock market has become increasingly concentrated during the past ten years as tech stocks have benefited from new technological innovations more than smaller companies. Large cap stocks have outperformed small caps, and the US stock market has outperformed the rest of the world. A new group of super-caps now dominates the market.
Based upon our analysis of the past 150 years, there seems no reason to believe that the increased concentration of the past ten years is the harbinger of a major bear market. Increased concentration is the sign of a bull market and bear markets reduce concentration. There have already been two bear markets during this decade, in 2020 and in 2022, but each one was mild and brief, so there was little impact on concentration. Neither one was like the bear markets of 2000 and 2008 in which the market declined by over 50%, each of which reduced concentration.
As long as new technological innovations continue to occur, the trend in increased concentration will probably continue. As can be seen in Figure 3, in the past, sudden increases in market concentration were not followed by dramatic bear markets. Bull markets continued for years following the concentration that was associated with the onset of a bull market. The introduction of AI will probably aid the increased concentration in the stock market, benefitting the super-caps.
We may not be able to predict the future, but as the saying goes, the trend is your friend, and for the near future, the trend is for greater concentration. There is little reason to believe that a new bear market is imminent as a result of increased concentration in the market.
