Superstar Stocks Are Getting Rarer in the Winner-Take-All Market

For people looking on anxiously as stock wealth converges in an oligarchy of high-tech juggernauts, some perspective: It’s nothing new.

That’s the upshot of six years of research by Hendrik Bessembinder, whose work shows how unevenly the stock market’s rewards are apportioned over time. The Arizona State University finance professor is back with a new study, Shareholder Wealth Enhancement, 1926 to 2022, saying that not only do bizarrely few stocks make up the lion’s share of returns in the last century, but that the pool of superstar companies may be shrinking.

Bessembinder’s paper is of interest to anyone who has worried about how the craze for artificial intelligence mostly confined gains in the S&P 500 to half a dozen companies that account for virtually all of this year’s advance. Treating that basic pattern as unusual is a mistake, his work suggests. In fact, there’s reason to believe the situation is permanent and likely to intensify.

“I can’t tell you which firms are going to be the big winners over the next 30 years, but I feel really confident saying a few firms will dominate the market,” he said in an interview. “It seems to be becoming an even stronger phenomenon that the wealth enhancement is concentrated in a relatively few stocks.”

Bessembinder made waves six years ago with research showing that because companies like Apple Inc. and Exxon Mobil Corp. trounced their peers by so much in terms of returns, less than 4% of stocks trading since the 1920s have generated a majority of the market’s upside. His new study raises the possibility the situation is becoming more entrenched: While five stocks were responsible for 10% of the wealth expansion through 2016, the number shrank to four in 2019 and is just three today.

Fewer Stocks Make Up Lion’s Share of Market Gains | The number of big winners is shrinking