ORLANDO, Florida, Oct 28 (Reuters) - Another wave of

U.S. tech euphoria lifted Wall Street to new highs on Tuesday,

this time in the shape of a deal between Microsoft and OpenAI, a

day ahead of a clutch of U.S. Big Tech earnings and the Federal

Reserve's policy decision.

In my column today, I look at the U.S. stock markets' record

concentration and the iron grip 'Big Tech' has on Wall Street.

By global standards, however, the U.S. isn't actually that

top-heavy at all.

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

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3. Microsoft, OpenAI reach new deal valuing OpenAI

at $500

billion

4. End of Fed QT may offer Treasury convenient

buffer: Mike

Dolan

5. Investors anticipate new wave of Argentine

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Milei's midterm victory

Today's Key Market Moves

* STOCKS: New highs in Britain, Spain, the big 3

U.S.

indices, and MSCI All-Country. Japan, pan-European benchmarks

ease back after record rally.

* SHARES/SECTORS: Apple hits $4 trillion market cap,

UPS

+8%, Nvidia ( NVDA ) +5%, Microsoft +2%. Only three U.S. sectors rise,

tech's 1.7% gain lifting the wider market. Real estate -2.2%.

* FX: China's spot yuan hits 1-year high through

7.10/$,

Argentine peso slides 3%. In G10 FX Japan's yen +0.5%, sterling

-0.5%.

* BONDS: Treasury yields in tight range, down 2 bps

at

long end to flatten curve. 7-year auction mixed.

* COMMODITIES/METALS: Oil -2%, gold -0.5% to a

three-week

low further below $4,000/oz.

Today's Talking Points

* Tech venture mania

Another strand was added to the tangled U.S. tech and

artificial intelligence ecosystem on Tuesday as Microsoft and

OpenAI reached a deal to allow the ChatGPT maker to restructure

itself into a public benefit corporation, valuing OpenAI at $500

billion.

Many Big Tech firms have commitments, joint ventures, or

tie-ups worth hundreds of billions of dollars with one another.

OpenAI and Nvidia ( NVDA ) are two of the most involved. Skeptics argue

not all will play out as flagged and concentration risk is only

increasing, but for now, they are enough to keep the AI-fueled

market juggernaut going.

* U.S. job losses mount

Amazon and UPS on Tuesday announced combined job losses of

at least 62,000, among the biggest round of publicly confirmed

job cuts in a year that has seen a slow, steady drumbeat of

firms shedding workers.

How much this gets on Fed officials' radar remains to be

seen. But at the very least, and with no economic data being

released due to the government shutdown, it is a sign that the

labor market is weakening, perhaps even more than they have

bargained for.

* Fed to deliver

The Federal Reserve is widely expected to cut interest rates

again on Wednesday by a quarter of a percentage point, and

according to rates futures markets, repeat the move in December

and at least twice more next year. Let's see what signals Chair

Jerome Powell gives about that.

There may also be some big changes around the Fed's balance

sheet and the plumbing of the U.S. banking system, with the Fed

perhaps announcing it will end QT soon. Indeed, this could open

up the possibility of the Fed buying bonds or bills in the near

future.

US stock market concentration is less extreme than you think

With Wall Street scaling fresh peaks and five of the

"Magnificent Seven" U.S. tech giants reporting earnings this

week, investors' focus is once again zeroing in on record-high

stock market concentration and the risks associated with it. But

this concern may be overblown.

This is not a new debate, but it has raged in the last two

years, particularly with the explosion in Nvidia's ( NVDA ) share price.

The chipmaker's market cap has quadrupled since 2023 to $4.5

trillion, lifting the Mag 7's share of the S&P 500 above the 30%

mark.

However, surprising as it may be to many market-watchers,

concentration on Wall Street is not that extreme by global

standards. In fact, the U.S. lags well behind many developed

economies when it comes to equity market concentration, and even

further behind some key emerging economies.

AMERICAN UNEXCEPTIONALISM

When looking at a dozen of the world's largest stock

markets, the U.S. is actually the fifth-least concentrated,

according to Michael J. Mauboussin and Dan Callahan at Morgan

Stanley.

The top 10 U.S. stocks accounted for 33.8% of total market

cap at the end of September this year. Only India, Japan, China

and Canada were less concentrated, while concentration was most

extreme in France, Taiwan and Switzerland.

It should be noted, however, that Taiwan is an outlier,

heavily skewed by Taiwan Semiconductor Manufacturing Co, the

world's biggest producer of advanced chips. On its own, TSMC

accounts for over 40% of the country's entire stock market cap.

Meanwhile, equity market concentration appears to be

intensifying in key emerging economies, primarily driven by

tech. That was the conclusion of research published this year by

Morningstar's Lena Tsymbaluk and Michael Born.

They analyzed China, Brazil, South Korea, Taiwan and India,

five countries that account for 80% of the Morningstar Emerging

Markets Target Market Exposure Index. Morningstar's Target

Market Exposure indices include a country's or region's 75% most

liquid stocks in terms of trading volume and turnover.

Based on these criteria, the top five stocks at the end of

last year represented 27% of India's market compared with 35% in

China, 46% in South Korea, 47% in Brazil, and 72% in Taiwan. For

comparison, the equivalent shares in Morningstar's U.S., UK and

global TME indexes were 26%, 17.5%, and 33%, respectively.

For all the fretting that Wall Street's eggs are all in the

one Big Tech basket, concentration risk is more extreme in other

countries - something that U.S.-based investors seeking to

diversify their portfolios by going into overseas markets should

perhaps bear in mind.

DOES IT MATTER?

This all raises the inevitable question of whether market

concentration really matters.

To be sure, it is hard to "beat the market" when mega-cap

stocks make outsize gains. That is often the case during periods

of high concentration, as returns tend to be driven by the

handful of stocks at the top rather than all the individual

names underneath.

Look no further than the U.S. for evidence of this. Only 8%

of surviving active funds in the U.S. large-cap blend category

beat the passive alternative over the decade ending June 2024,

according to Morningstar. The Mag 7's footprint in U.S. earnings

and performance is simply too large.

There are also concerns that high concentration increases

risk, given that one is essentially betting on the performance

of a handful of companies.

In the U.S., many worry that the tech bubble - or, more

specifically, the artificial intelligence bubble - will burst.

With valuations so high, Cassandras fear that this top-heavy

market will simply keel over. But obviously none of those

outcomes has come to pass.

Of course, there may be a day of reckoning, but it may not

be for some time. And it is certainly not inevitable, given the

strength of these tech giants' earnings and how entrenched

investors' "buy the dip" mentality has become.

It is ultimately a classic risk-reward dilemma. If you want

a more balanced portfolio, diversify more because a sharp

reversal in tech could trigger an outsized downturn. If you want

to keep enjoying the returns generated by the biggest names,

there is no need to rock the boat.

Currently, the bigger risk may be betting on a reversal too

soon. As the market maxim goes, being too early is the same as

being wrong.

What could move markets tomorrow?

* RBNZ Governor Christian Hawkesby speaks

* Australia inflation (September, Q3)

* Japan consumer confidence (October)

* Canada interest rate decision

* U.S. Federal Reserve interest rate decision

* U.S. Treasury auctions $30 bln of 2-year floating rate

notes

* U.S. earnings, including Microsoft, Alphabet, Meta,

Caterpillar,

Boeing

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Opinions expressed are those of the author. They do not

reflect the views of Reuters News, which, under the Trust

Principles, is committed to integrity, independence, and freedom

from bias.

(By Jamie McGeever;)