Powers: Concentration risk is the biggest risk in the market

Market Sentiment & Risk - Investors could be "blindsided" if the concentrated market unwinds, as too much money is piled into too few names [2] - The top 10 stocks, mostly mega-cap AI names, make up 41% of the S&P 500's market share and have driven over 70% of this year's return, indicating concentration risk [5] - Equal weight S&P is up about 6% year-to-date, while the cap weight is up close to 16%, showing the average stock is not keeping up [6] - Sentiment fatigue is evident when good news isn't enough to move stocks higher, as seen with Palantir and previously with Nvidia's earnings [9][10] - Dollar bottomed on September 17th and is up more than 3% since then, while Bitcoin peaked on October 6th and gold on October 20th, suggesting a shift in market sentiment [10][11] AI & Valuation - 24% of early AI adopters report benefits from AI, up from 15% a quarter ago, potentially supporting elevated valuations [7] - Some AI-linked stocks are trading at forward P/E ratios close to 100 or even 200 times, while the broader S&P sits at 23 [9] Sector & Stock Specifics - Healthcare is a leading sector in Q3, indicating a defensive positioning [12] - The market has tossed aside quality companies with strong balance sheets and consistent earnings, overshadowed by mega-cap names [13][14] - Merck (MRK) stock is down almost a third since last July due to concerns around Keytruda losing exclusivity in 2028 [14] - Merck offers almost a 4% dividend yield, consistently grown for over a decade, and a close to 8% shareholder yield when including buybacks [15]