The week involved a plethora of noteworthy political news. In Nevada, Nikki Haley trailed “None of these Candidates.” Further, both the Supreme Court’s liberal and conservative justices indicated significant apprehension about disqualifying Former President Trump from the ballot. Finally, Robert Hur, the special counsel appointed to investigate President Biden, decided against criminal charges for classified document mishandling. While the political realm was certainly action-packed, financial markets had their own major story, too. After hovering around 5,000 for most of the week, the S&P 500 broke through the level to close at a record.
The S&P 500 has been a heavily relied upon benchmark index for many investors, and while many understand it is comprised of five hundred companies, some might be shocked to learn of the uneven weighting within the index. Analysis of SPY (a leading S&P 500 ETF) holdings sheds light on significant disparities in weighting within the index. The top ten holdings (comprised of mega-cap stocks like Apple, Microsoft, and Google) make up over 30% of the index despite only representing 2% of the number of companies within.
The S&P 500’s increasing exposure to technology stocks in recent years has shifted it to a stronger growth-reliant index. Unsurprisingly, it has a Shiller price-to-earnings ratio today, 33.83, that sits well above historical averages. In analyzing the increased power of growth stocks, there is one recent highflier that cannot be ignored: Nvidia. Nvidia has seen a meteoric rise in the last year, up well over 200% in the last 12 months. Beyond information technology, other major sectors are financials and health care, but even those two combined still comprise less of the index compared to the information technology sector.
The 5,000 mark for the S&P 500 is certainly a major psychological move in the positive. The sentiment in the market, according to CNN’s Fear and Greed Index, was one of “extreme greed” as of February 9th. After seeing double-digit losses in 2022, a major recovery and strong economy, even in the face of tight interest rates, have taken the markets to where they are today. Ultimately, inflation is still heavily being watched and will be an important indicator of the Federal Reserve’s monetary policy moving forward, which is bound to impact markets. As of Friday’s February 9th close, at least if the S&P 500’s move beyond 5,000 is any indication, markets are optimistic moving forward.