S&P500 Sector Composition

Today we take a look at the sectors that make up the S&P500.  It’s worth reflecting on sectoral composition of stock market indexes as the make up of the index can have a huge bearing on the conclusions of analysis around trends, valuations, and of course on the returns experienced.  The below chart shows the market cap % share of each of the 10 GICS sectors*.

That star by sectors is a note to say that there are actually 11 GICS sectors now that Real Estate has been broken out of Financials – but for the sake of this analysis they’re included in financials.

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Anyway, there are a number of interesting observations.  First of all in the early 1990’s there was a much more even spread of sector weights, versus now you have the 3 percenters down the bottom (materials, utilities, telecoms), and the megasectors of IT, financials, and healthcare.  This highlights an interesting point, the 3-percenters are historically the cheaper sectors while IT and healthcare are among the most expensive sectors (albeit financials are the cheapest).  So given the rise and rise of IT and healthcare is it possible that index level valuations should actually be at a new-normal higher level also?

One to think about… and an issue that will be addressed in detail in this week’s Weekly Macro Themes publication for subscribers.

Bottom line: The sectoral make-up of the stock market is constantly changing and is important to monitor as structural shifts do happen e.g. the rise of IT and healthcare.

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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.