Last week, the S&P 500 hit a new record high above 7,000 points. So why am I not celebrating?
Because it also made another, less encouraging record last week. It hit the new record with the lowest-ever number of stocks at a 52-week high (only 2.4%).
In other words, a tiny number (about 12) of companies were responsible for most of the growth.
What does this mean for investors?
AI concentration risk
Looking at the stocks that got us here, it’s easy to see where the concentration is. The top three S&P 500 stocks with highest volume last week were Intel, AMD, and ON Semiconductor.
Looking deeper, the top three stocks with the highest 52-week gains were Western Digital, Ciena Corporation, and Seagate Technology.
Seeing a pattern? Yup, it’s no surprise: AI demand is driving outsized growth.
This makes the US market look strong on paper only. Any small slip up in the AI market and everything goes south quickly.
But before selling everything and stashing cash in pillows, remember: risky markets can also offer opportunties.
Let’s take a look.
Currently, the top 10 companies on the S&P 500 make up 36% of the index. These are the usual suspects — Nvidia, Google, Microsoft, etc. Aside from mild caution around Apple and Tesla, analysts are overwhelmingly bullish on all of them.
Personally, I don’t share that optimism. But there are some interesting developments that have caught my eye lately.
Besides a potential AI-bubble, two other factors add risk to the US market currently: inflation and tariffs. The sectors least likely to be affected by these are healthcare, utilities, and consumer staples.
So for investors looking to rebalance into something less risky, this is where to look.
A lesser-known value play
One attractive value opportunity I’ve identified recently is The Cigna Group (NYSE: CI). The $73bn health services company looks cheap right now, with the shares down 15% in the past year despite an 81% profit jump.
With further growth expected, the current price is estimated to be only nine times future earnings. That’s unusually low for one of the five largest healthcare providers in the US.
For comparison, rivals United Health and HCA have earnings multiples between 16 and 18. This is likely because Cigna features less frequently in large trusts and ETFs, so the market hasn’t priced in its full earnings potential yet.
For value investors, this offers an opportunity to get in before the market catches up.
Of course, growth isn’t guaranteed. US healthcare policy is famously tricky, and Cigna’s profits rely heavily on government contracts and pharmacy‑benefit‑manager (PBM) economics. It’s not like the UK, with different drug-pricing rules and volatile politics all adding risk.
Still, it’s a good example of the type of stock to consider as a risk-hedge in this economy.
The bottom line?
This is not the first time a small number of the S&P 500 constituents have driven the index to new highs. It happened before, in March 2000, a few months before the dot-com bubble burst.
In the year following that high, Cigna’s stock price rose over 70%, while the overall S&P 500 fell 22%.
Of course, past performance is no indication of future results. But when market’s look bubbly, I find good old traditional companies hold up better than hyped-up tech stocks.
