In the land of the giants

Aug 11, 2020 | Jay Zhang


The five largest stocks in the S&P 500 have accounted for a disproportionate share of stock market returns for some time now. We look at why this is concerning but also why it’s not. Patience is required for holders of diversified equity portfolios.


The major equity indexes can be quirky. They are intended to reflect the performance of “the market,” a broad and diverse group of stocks, and they often do. But lately some U.S. indexes haven’t mirrored the performance of the overwhelming majority of their stocks.

Take the S&P 500, for example. It’s widely considered the benchmark or representative U.S. market index due to its composition of large-capitalization stocks, diversified across 11 sectors and numerous sub-industries.

So far in 2020 and for the past year, a handful of the largest stocks within the S&P 500 have far outpaced the index as a whole. Take these giants out of the index, and it’s easy to see there is a chasm between the “haves” and “have-nots”:

• The S&P 500 has risen 9.8 percent in the past 12 months (period ending July 31, 2020). This is a healthy return, about two percentage points above the long-term annual average stretching back almost 100 years, excluding dividends.

• But the five largest stocks by market value (capitalization) represent almost all of the index’s gains. These tech-oriented stocks have surged 58.1 percent during the same 12-month period: Apple, Microsoft, Amazon, Alphabet (Google), and Facebook.

• When these tech giants are stripped out of the index, the remaining stocks in the S&P 500 have risen only 0.6 percent collectively, according to a study by our national research correspondent.


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