The S&P 500 Returns May Not Be What You Think

Vice President, Investment Services

We’re at the mid-point of 2024, and the stock market (as measured by the S&P 500) is up almost 13% year-to-date.  The Dow Jones Industrial Average, on the other hand, tells a different story. While still positive on the year, the DJIA is up only a little over 2.5%.

In this article, we will explain the difference between the two…and what this means for your portfolio.

The Magnificient Seven

As we wrote in a previous newsletter, the performance of the S&P 500 was concentrated in just a handful of stocks through much of 2023. As they came to be known, the Magnificent Seven posted an average return of 111% last year, compared to 24% for the S&P 500. 

Due to the size of these seven tech-oriented companies, they constituted a large portion of the market-cap-weighted index’s return.  As a result, if you didn’t own these companies, your returns were likely to have been well below the index’s.

Looking at the S&P 500 for 2024, we notice that only 292 (58%) of the companies making up the index have had positive returns year-to-date. Of those with positive returns, 41% have posted returns in the single digits. This tells us that the performance of the S&P 500 will continue to be very concentrated in 2024.

What About the NVDIA Effect?

NVDIA Corporation (NVDA) is a computing infrastructure company, with considerable exposure to the rapidly growing artificial intelligence (AI) market. In mid-June, NVDA briefly surpassed Microsoft (MSFT) to become the world’s largest publicly traded company, with a market capitalization of around $3.2 trillion.

Given its size, and with a year-to-date return of over 155%, NVDA has made a massive contribution to the performance of the S&P 500.  In fact, without NVDA, the performance of the S&P 500 would have been closer to 6% year-to-date.

It’s a bit hard to imagine that one company can account for over half the return of an index of five hundred (503 actually…but who’s counting?).

So, as we watch our favorite business news channels, turn the pages of the Wall Street Journal, or surf the internet to see how “the market” is doing, keep in mind that the indexes are not always indicative of all stocks. And with market cap-weighted indexes such as the S&P 500, only a limited number of companies can account for a great deal of the returns.

If you have any questions regarding your investments, please reach out to your planner.