S&P 500 Index: A Bucket of Equals

Jeff Karp |

First question...how many stocks are in the S&P 500 index?  Did you get the hint, hidden in the question?  Second question…through mid-April, how many stocks in the S&P 500 index accounted for over 50% of the index returns in 2017?

Many people do not realize that the S&P 500 index is size-weighted, meaning that the largest companies make up the bulk of the index returns while a company in the bottom grouping, while important companies, have a very small effect on the overall index returns.

What then, does the index tell us about the overall health of the stock markets and therefore, the economy?  One of the articles in the April 18th addition of the Wall Street Journal was titled “Just 10 Stocks Fuel Half of S&P’s Gains”. I wondered how many investors were aware of the weighting bias toward large companies and potentially narrow industry focus of the top holdings.  I also wondered how investors were (or were not) using this knowledge.  Would a better reference guide be an equal weight index.  All of these are good questions that each investor may want to answer for themselves.

Answer to the second question, just 10 stocks out of 500 accounted for over 50% returns in the S&P 500 index through mid-April and 6 of those were in the technology sector.

Extra Credit: What is currently the number 500 stock on the list? NWS-News Corporation currently has the least weighting in the index.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. No strategy assures success or protects against loss. Securities and Advisory Services provided through LPL Financial, a Registered Investment Advisor, Member FINRA, SIPC.