The top 10 constituents of the S&P 500 now represent over 30% of the total index. When you buy a passive SPY index, you are getting two portfolios, a 30% mega-cap portfolio and a 70% diversified portfolio. We are at market extreme well beyond the tech bubble, but the dynamics are different given the strong growth of passive investing. If more money goes into indices, there will be a natural push of prices higher for these mega-caps. Marginal sellers who believe these stocks are overvalued may not have enough capital to push prices lower; however, a macro event which causes rebalancing away from equity will have a strong effect on these top ten names. This can be a valuation effect, but the macro effects may be stronger.
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