The S&P 500 May Depend on the Fortunes of These 3 Companies Right Now. Here’s the Good News and the Bad News for Investors.
The S&P 500 has always been an index offering a clear picture of the companies driving the U.S. economy, and in its earlier days, energy and manufacturing companies found themselves at the top. But this picture rapidly changed over the past decade as technology players gained momentum in earnings growth and stock performance.
A company’s position leading the famous index depends on its market capitalization, and it also must be primarily owned by the public, rather than by founders, for example. Today, this puts three tech giants in the top spot — and they are followed by several other tech powerhouses. In fact, we only start seeing companies from other industries around the 10th position. At this point, companies including Eli Lilly, Berkshire Hathaway, and Walmart broaden the index’s exposure into other industries.
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Considering all of this, the S&P 500 may depend on the fortunes of the following three companies right now. Let’s consider the good news and the bad news for investors.
Image source: Getty Images.
A transition at the top of the S&P 500
So, first, let’s consider how this transition from energy, manufacturing, and even consumer-related companies to tech stocks dominating the S&P 500 took place. As mentioned, the index is a reflection of the businesses leading the economy, and the fast growth of tech companies, from Internet and e-commerce players to chip designers and cloud service providers, catapulted them into the driver’s seat.
The last time a non-tech player was in the top three of the S&P 500 was back in 2014, and that was ExxonMobil, according to FinHacker data. The energy company was No. 2 after Apple, and these top companies’ market values were in the hundreds of billions of dollars — not in the trillions as leading S&P 500 companies are today.
As tech companies‘ earnings soared, investors piled in, market cap advanced, and the rest is history. This brings us to the subject of today’s biggest S&P 500 companies, and they are Nvidia, Apple, and Microsoft, with weightings of about 8%, 7%, and 5%, respectively. That means that, together, they carry a weight of about 20%. Considering that fellow tech giants follow in the top 10 positions, the S&P 500 depends heavily on the fortunes of tech companies today, particularly Nvidia, Apple, and Microsoft.
