I’ve said many times that I don’t like how top-heavy the S&P 500 has become. Among other problems, its market-cap weighting provides a distorted view of the overall market. But if we look at the S&P 500’s performance in March and in the first quarter, we can see what’s actually driving the index.

This first chart shows how the 11 individual S&P 500 sectors performed in March compared to the index as a whole. Please note that this is a relative, not absolute performance comparison. For example, technology (purple column) was up almost 11% last month, which was 7 percentage points higher than the S&P 500. That difference is what’s reflected in the chart.

Column chart comparison of individual sectors vs the S&P 500's overall performance in March 2023
Chart created at StockCharts.com

Even though 8 of the 11 sectors were positive in March, technology and communication services were the proverbial rising tide that lifted all boats. Only those 2 sectors performed better than the overall increase of the S&P 500.

In the first quarter, just 3 sectors drove the S&P 500’s performance.

The rising-tide trend we saw in March holds true for the quarter as well. Here’s a look at each sector’s 1st-quarter performance:

Table showing the individual performance of each S&P 500 sector in Q1 2023.
Created at StockCharts.com

While 7 out of 11 sectors are positive on the year, it’s really just 3 that are driving the market. Only technology, communication services, and consumer discretionary are beating the S&P 500’s overall performance—and they’re accomplishing that by a significant margin.

The chart below shows each sector’s first-quarter performance compared to the S&P 500. Like the chart in the previous section, it shows relative, not absolute performance. For example, tech (purple column) is up almost 22% on the year, which is 15 percentage points higher than the S&P 500.

Column chart comparison of individual sectors vs the S&P 500's overall performance from January to March 2023
Created at StockCharts.com

I’m writing an article about ETFs that don’t use market-cap weighting like the S&P 500 does. They have many advantages as a result (e.g. more diversification and greater exposure to smaller companies). If you’re not an Antagonist subscriber, be sure to sign up now so you don’t miss it. It’s free!

This article is for informational purposes only. It is not financial advice. See the full disclaimer for more details.

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