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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