Here’s What the S&P 500 Looks Like in 2020 Without Big Tech

Jonas Elmerraji, CMT

Think the S&P 500 (^GSPC) - is hanging out around all-time highs right now? Think again.

Yes, nominally, the S&P 500 is hovering right at record highs. But, because of the way the S&P 500 is calculated, that doesn’t mean what most people think it means.

A few massive names have generated virtually all of the S&P's performance in 2020.

Back in June, we took a look at why the average S&P 500 stock was down much more than most people realized (click here for the rundown).

The reason? A handful of big stocks – mainly tech stocks – have generated most of the performance this year:

biggest_SPX_weights_2020

The ten biggest stocks in the S&P 500 at the start of the year have been steadily adding up to a bigger chunk of the index. More than half of those stocks are tech sector names like Apple (AAPL) -Get Report, Microsoft (MSFT) -Get Report, Alphabet (GOOGL) -Get Report (GOOG) -Get Report, Amazon (AMZN) -Get Report and Facebook (FB) -Get Report – plus a few big non-tech stalwarts like Berkshire (BRK.B) -Get Report and J&J (JNJ) -Get Report.

The chart above shows what it would look like if the index were rebalanced daily – those original ten giant names add up to about 30% of the S&P right now.

Take them out, and the market looks dramatically different:

SPX ex tech

In the chart above, you’re looking at the cap-weighted performance of the ten biggest stocks at the start of the year versus the other 490.

The red line is what the S&P 500 would look like without those ten stocks…

At last count, the ten largest S&P 500 stocks are up 25% so far this year, on average. Exclude them, and the S&P 500 is down 3.4%.

But what’s most striking is what’s been happening more recently – since June, while the biggest stocks have been pulling the S&P towards record highs from February, the S&P minus those ten names is still lower than it was just two months ago.

The biggest takeaway is that momentum is still very much alive and well this summer – ignore the trend at your peril.

It’s an important reminder that buying what’s working is a sound strategy in crisis markets.

Footnote: For anyone curious, here’s the ten stocks that made up the “buy list” at the start of 2020…

biggest_SPX_stocks
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