The S&P 500, the stock market index of the 500 largest companies listed in the United States, is the most prominent stock index in the US. So much so that when people refer to “The Market,” they are likely referring to what the S&P 500 is doing. While the index is comprised of 500 different companies and offers a fairly broad representation of the United State’s biggest corporations, it still has its drawbacks or shortcomings.
The most notable feature of the S&P 500 is that it is market cap-weighted. This means each company is ranked 1-500 based on the total size of their market capitalization (essentially how much the company is worth or valued at) and given a weighting to index that is representative of their size versus the size of all 500 companies. Currently, Apple is the biggest company in the US and has a weighting of around 7% in the S&P 500. Paramount Global is the smallest company in the index and has a weighting of 0.01%. SlickCharts So, for every $100 you invest in the S&P, $7 is invested in Apple, and $0.01 is invested in Paramount Global.
For much of this year and the past handful of years, most of the returns of the S&P have come from a select few stocks. These stocks have taken on the name of The Magnificent Seven. These seven companies are Apple, Microsoft, Nvidia, Amazon, Meta (Facebook), Google, and Tesla. Not only have these been amongst the best-performing stocks in the US, they also have the biggest representation in the S&P 500. Combined, they make up around 30% of the index. As the chart below shows, this has been rewarding for investors.
The Magnificent Seven (in purple) have had another amazing run this year and were up nearly 50% on the year in early July. This has helped the S&P 500 (in blue) reach a gain of nearly 16% this year so far. Bringing up the rear is the S&P 500 Equal Weight Index (in orange). This index weighs all 500 companies the same, giving each one an equal representation in the index. Since most of the gains throughout the year have come from just a few stocks, the equal weight index has fallen victim to the other 493 stocks underperforming.
In early July, things started to change. The chart below shows the same three indices, starting from July 1st.
As you can see, this chart tells a completely different story. In early July, favorable economic data was released pointing to inflation remaining lower and potential interest rate cuts being in our near future RSWA – Financial Advisor Insights July 19. This, combined with quarterly earnings reports showing that all of the AI spending may take longer to pay off than originally projected. With all that news, many investors have sold some of their positions in The Magnificent Seven and put their proceeds to work in the other 493 stocks that comprise the index, leading the S&P Equal Weight Index to outperform its market-weighted counterpart pretty handily over the past two months. Whether this trend will continue will remain to be seen, but this is a welcoming sign for investors with any money invested outside the biggest tech companies.
US Wages vs. Other Countries
Last month, the Economic Innovation Group published an interesting research report comparing US workers today against workers from the rest of the world and US workers in previous generations. Economic Innovation Group – US Workers in Global Comparison So, how do we stack up? It depends on how you look at it.
When looking at wages in terms of relative purchasing power, the US is among the best. The study found that the US, on average, ranks 3rd only behind Luxembourg and Iceland. When breaking out each state, only four states rank below Belgium, the 5th highest earning country. States with the lowest wages (Hawaii and Mississippi) are still well above the OECD average.
If adjusted for hours worked, the US starts to fall behind. While American workers may earn more than their counterparts in Germany, Netherlands, Austria, Denmark, and Switzerland, they work additional hours to do so. This points to a potentially better work-life balance in many of these developed European countries.
Financial Planning/Investment Strategy Corner:
Localized Charitable Giving Through Community Foundations
We have written numerous times about the benefits of maximizing your charitable giving through Donor-Advised Funds (RSWA – Charitable Giving Made Easy with Donor-Advised Funds) and Qualified Charitable Distributions (RSWA - Using an IRA QCD: Consider Giving Your IRA RMD to Charity). However, there are other great ways to give back to your community through charitable giving. One that we are highlighting today is giving through your local community foundation.
A community foundation is a type of public charity that supports local charities and communities through grants and other programs. These foundations are typically focused on a particular geographical area and pool donations to address community needs and support local nonprofits. They usually offer a variety of programs that support the needs of the community that they are in and ways that community members can give. Some of these programs include:
- Designated funds – provides annual support to nonprofit organizations that you choose
- Field-of-interest funds – provides support for a particular issue (i.e., environment, children’s health, homelessness, etc.)
- Scholarship funds – provides support to students pursuing various educational opportunities
- Unrestricted or flexible funds – gives the Foundation the flexibility to support organizations as they see fit
New Hampshire (New Hampshire Charitable Foundation) and Maine (Maine Community Foundation) have local foundations. These foundations combine the generosity of local donors with their expertise in community needs to maximize the positive impact of each charitable gift. If you are interested in charitable giving but don’t necessarily have particular charities in mind that you want to give to, a community foundation could be a great fit.
Quick Hits:
- The NFL season has officially kicked off, which means you are likely to be bombarded with people complaining about their fantasy football team. Here are some tips to not be one of them and win your league – The Ringer
- The NFL season also means that fall is near, which means apple-picking season is near. Here are the best places to go to pick your own apples in New Hampshire - NH Magazine and in Maine – Visit Maine
- Running or Swimming? Which is better for your body? – WSJ
- What is Eastern equine encephalitis, or EEE, the mosquito-borne virus found in 5 states including New Hampshire, Vermont, and Massachusetts – The Washington Post
Quote: "The most valuable player is the one who makes the most players valuable." – Peyton Manning
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