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The 80 Problem: Why the S&P 500 Is Breaking Fundamental Investing

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  Published in Stocks and Investing on Thursday, December 11th 2025 at 9:40 GMT by Forbes

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The 80 Problem: Why the S&P 500 Is Breaking Fundamental Investing

When a reader first stumbles upon Jon Markman’s headline—The 80 Problem: Why the S&P 500 Is Breaking Fundamental Investing—they’re probably thinking about the famous 80‑percent rule in portfolio construction. Markman, however, turns that rule on its head and reveals a new, more ominous meaning: roughly 80 percent of the S&P 500’s current valuation, performance, and even its risk‑premium narrative are being carried by a tiny handful of growth‑oriented, high‑valuation tech titans. The result? A market that no longer reflects the fundamental metrics that have historically guided investors to durable returns.

1. The “80” is Not a Coincidence

The article opens with a striking observation: the 10 largest constituents of the S&P 500—Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, Tesla, Berkshire Hathaway, JPMorgan Chase, and Johnson & Johnson—constitute about 70–80 percent of the index’s market cap. While diversification is an essential principle, a concentration this high undermines the very idea that an index represents a broad cross‑section of the U.S. economy. The problem is that those 10 stocks are also some of the most aggressively valued by the market, with forward price‑to‑earnings ratios (PE) that hover above 30 and, in some cases, near 80.

Markman illustrates this with a chart that traces the index’s forward PE over the past two decades. While a typical valuation band for the S&P 500 has been 15‑25, the current level sits at 27‑30, and the average of the 10 giants alone sits at roughly 80. The 80‑point figure, therefore, isn’t just a statistical quirk—it’s the index’s valuation reality.

2. Fundamentals vs. Growth‑Driven Narratives

Traditional “fundamental investing” relies on metrics such as earnings yield, dividend yield, price‑to‑earnings (PE), and return on equity (ROE). Historically, these metrics were tightly linked: a high PE would often correspond to a low earnings yield and, conversely, high dividend yields would temper valuation multiples.

Today, Markman shows that the earnings yield of the S&P 500 is now only about 1.2 percent, compared with a dividend yield of 1.5 percent. The combined dividend‑plus‑earnings yield sits at roughly 2.7 percent, which is well below the 3.5‑4 percent risk‑free rates that investors historically demanded. The equity risk premium—the extra return that investors expect for holding stocks over risk‑free bonds—has shrunk from a 4‑5 percent cushion to a mere 1 percent.

The shift is clear: investors are pricing in earnings growth rather than return on capital. This trend is especially pronounced among the tech giants that dominate the index. Their valuation multiples are sustained by expectations of ever‑increasing revenue growth, not by solid, cash‑generating fundamentals.

3. The “80 Problem” in Practice

Markman doesn’t just present data; he digs into the implications:

• Concentration Risk – With 80 percent of the index’s market cap held by just 10 companies, the S&P 500’s performance becomes almost synonymous with the fortunes of those few. A downturn in any one of them can disproportionately depress the entire index.

• Valuation Disparity – While the tech leaders are trading at multiples approaching 80, the remaining 490 stocks of the index have forward PEs that are in the 10‑15 range—much closer to historical norms. Yet the index’s overall PE remains inflated because of the weightage of the high‑valuation leaders.

• Misleading Risk‑Premium – The equity risk premium calculation uses the index’s aggregate metrics. When those metrics are skewed by a handful of overvalued stocks, the resulting risk‑premium figure underestimates the true compensation required for the broader market’s risk exposure.

• Fundamental Blind Spot – Investors following a pure index strategy might ignore the underlying company fundamentals. They’ll remain exposed to the high‑valuation bubble that the 10 giants represent, while missing the opportunities in the remainder of the index that are still trading at reasonable valuations.

4. What This Means for Investors

Markman concludes that the S&P 500 has moved beyond the purview of a “fundamental” benchmark. The index’s valuation dynamics are now dominated by a small number of growth stocks that deviate from the traditional fundamentals that guided investment decisions for decades.

For investors who still want to harness the diversification benefits of a broad market index, Markman suggests:

1. Use a Sector‑Weighted or Equal‑Weight Index – These alternatives dilute the concentration of the top 10 stocks and provide a more balanced view of the market’s fundamentals.

2. Focus on Individual Stock Fundamentals – Rather than buying the index wholesale, investors should screen for companies with solid earnings yields, dividend yields, and reasonable PE ratios.

3. Monitor the Equity Risk Premium – A persistently low risk‑premium signals that the market’s valuations are out of sync with its risk profile. Adjusting expectations accordingly can protect against overpaying.

4. Rebalance with Value Stocks – Incorporating value stocks that trade at lower multiples can bring the portfolio’s overall valuation closer to historical averages and improve risk‑adjusted returns.

5. The Takeaway

Jon Markman’s The 80 Problem is a wake‑up call that the S&P 500’s current valuation is no longer a reliable proxy for a diversified, fundamentally grounded view of the U.S. equity market. The “80”—the 80 percent concentration of market cap in a handful of overvalued tech giants—has distorted the index’s fundamental metrics and narrowed the risk‑premium window. For investors, the lesson is clear: an index that is 80 percent a single story no longer tells the whole tale. It’s time to look beyond the headline and assess each component of the market on its own merits.