*

Alphabet, Tesla to report earnings Wednesday, first of

'Magnificent 7' in Q2

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Top 10 S&P 500 weights recently hit 37.3%, near January

record

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Nvidia ( NVDA ) weight greater than five S&P 500 sectors

By Lewis Krauskopf

NEW YORK, July 23 (Reuters) - Wall Street's reliance on

a small number of high market-value stocks to keep momentum

going for the U.S. equities bull market will be tested in coming

days as major technology and growth companies report earnings.

Concentration in widely followed market barometers such as

the S&P 500 and Nasdaq Composite means that

weakness in just a few names can have broad ramifications as the

indexes hover at record highs.

"When a handful of stocks dominate the market ... if you do

have a period of disappointment from those stocks, you could see

disproportionate impacts on your portfolio from just a handful

of company-specific issues," said Michael Reynolds, vice

president of investment strategy at Glenmede.

Drawing attention to such top-heavy market leadership on

Wednesday will be earnings results due from Google parent

Alphabet and Tesla, the first of the

"Magnificent Seven" megacaps to report this period.

That group - which also includes Nvidia ( NVDA ), Microsoft ( MSFT )

, Apple ( AAPL ), Amazon ( AMZN ) and Meta Platforms ( META )

- earned the "Magnificent" moniker because of their

dominant business positions and huge stock gains in 2023 and

2024.

Stock performance this year among the Magnificent Seven has been

mixed. But they have all rebounded since April from a selloff

following President Donald Trump's "Liberation Day" announcement

of sweeping global tariffs.

The group amounted to one-third of the weight of the S&P 500

as of Friday, due to their massive market caps, their largest

combined presence since the start of the year, according to LSEG

Datastream.

Alphabet shares are up about 1% on the year, while shares of

Elon Musk-led Tesla are down about 18%. Together, they account

for over 5% of the S&P 500's weight.

Other data points also indicate market concentration

becoming more extreme.

The top 10 weights in the S&P 500 last week hit 37.3% of the

index, near the 38% level it reached in January, which had been

its highest level on record, according to S&P Dow Jones Indices,

citing data since 1975.

These massive stocks generally have higher valuations. The

top 10 stocks have an average price-to-earnings ratio of about

26 times, compared to 20 times for the rest of the S&P 500, said

Lisa Shalett, chief investment officer at Morgan Stanley Wealth

Management.

"The biggest stocks are very expensive," Shalett said. "If

the biggest stocks fall the most, the index is very vulnerable."

The S&P 500 technology sector recently accounted

for 33.9% of the entire S&P 500's market value, the largest

share since March 2000 during the height of the dot-com bubble

era, according to LSEG Datastream.

The S&P 500 is considered a benchmark for the stock market,

but its top-heavy nature could mean investors who own funds that

mirror the index are less diversified than they think.

"If you are designing a portfolio, you really need to

consider, OK, what are the weights there?" said Todd Sohn, ETF

and technical strategist at Strategas. "It's not as diversified

as it has been in the past. Then you have to consider some other

means out there to keep that portfolio balanced."

Nvidia ( NVDA ), which recently became the first company to top $4

trillion in market value, had as of Tuesday a 7.83% weight in

the S&P 500. That is the most a single stock has ever accounted

for in the index, topping the 7.7% that Apple ( AAPL ) reached last year,

according to Sohn, who looked at 45 years of data.

The weight of Nvidia ( NVDA ) - a semiconductor company that has

symbolized the artificial intelligence boom - is greater than

five entire S&P 500 sectors out of 11 in the index, including

consumer staples, which includes 38 stocks and has a

5.4% weight, and energy, a 23-company group with a total

S&P 500 weighting of slightly less than 3%.

Heading into the heavy part of earnings season, the S&P 500

is up over 7% this year, and becoming increasingly led by larger

stocks.

Since April 8, when the market hit its low point for the

year following Trump's tariff announcement, the S&P 500 has

gained nearly 27%. The equal-weight version of the index - which

is considered a gauge of the average S&P 500 stock - has risen

21.5% in that time.

Since the end of 2022, the S&P 500 has gained over 60%, more

than doubling the equal-weight version's gains in that time.

"When the market gets really expensive and narrow ... the

market becomes more vulnerable," said Matthew Maley, chief

market strategist at Miller Tabak. "So it's a big concern for

me."