There are mega-cap stocks. And then there’s everything else.

In a prior article, I talked about how the S&P 500 is extremely top-heavy and presents a distorted view of the market. There’s also too much concentration risk with just a handful of mega-caps responsible for the index’s gains.

The chart below (created May 2) compares the YTD performance of the market-cap weighted S&P 500 index (SPY) vs. RSP, an equal-weighted S&P 500 index.

The two lines diverge because mega-caps are significantly outperforming nearly every other stock. This means that the broad market isn’t as strong SPY’s returns would have you believe.

Chart showing a performance comparison of the market-cap weighted SPY vs. the equal-weighted RSP. The difference illustrates the influence of mega cap stocks.
Chart created on May 2 on with TradingView

I’m not saying that you should run out and sell your shares of SPY or any other market-cap weighted index. I’m simply presenting current conditions and risks that investors may not be aware of:

  1. SPY is more top-heavy than ever with mega-cap stocks responsible for nearly all the gains.
  2. SPY’s performance is not reflective of all the stocks in the S&P 500.
  3. SPY’s current makeup exposes investors to significant concentration risk.

Stay up to date on key financial news in just 5 minutes per week. Every Saturday morning, you’ll receive a summary of the top events, data, and insights. I also link to the sources so that you can dive deeper into the stories that most interest you.

Leave a Comment

Do Not Sell or Share My Personal Information