In 2022, the S&P 500 experienced a substantial drop of over 19 percent, marking its toughest year since the 2008 financial crisis. Despite this, the index showed strong resilience, bouncing back in 2023 with a gain of over 24 percent. By mid-2024, it continued its upward trend, registering an impressive increase of over 15 percent. The S&P 500, a stock market index that tracks the performance of 500 large companies listed on U.S. stock exchanges, is one of the most widely followed equity indices. It represents approximately 80 percent of the total market capitalization of U.S. public companies, with an aggregate market cap exceeding $43 trillion as of January 2024. The index is a free-float weighted/capitalization-weighted index.
As of June 28, 2024, the nine largest companies in the S&P 500 accounted for 35.8 percent of the index's market capitalization. These companies, ranked by highest to lowest weighting, include Microsoft, Nvidia, Apple, Amazon.com, Meta Platforms, Alphabet, Berkshire Hathaway, Eli Lilly and Company, and Broadcom. On June 18, the S&P 500 reached a historic milestone, surpassing 5,487 points, signaling a positive outlook for investors. However, such significant gains often raise concerns about potential market corrections.
Since reaching a new all-time high on January 19, the S&P 500 has set new intraday highs 30 more times. This is not uncommon; since the 1980s, the index has hit 40 or more new record highs in a single year on nine occasions. The year could very well join that list. The significant gains this year are primarily driven by a few leading companies, especially in the tech sector. Year-to-date, the index has returned over 15 percent, with approximately half of this growth attributed to the top 10 companies.
From an advisory perspective, for the market to continue its upward trajectory, broader participation is essential. Key events such as upcoming elections, the timing of rate cuts, and consumer demand indicators could significantly impact the market. Should these factors unfold unfavorably, increased volatility may occur. Investors should consider diversifying into defensive sectors such as Utilities, Staples, Healthcare, and Telecom to hedge against potential market volatility.
As we approach the end of a strong first half of the year, investors must focus on significant market-shaping events in July. With interest rates, inflation, and the broader economy still uncertain, the coming month is crucial. It is advisable to reassess and reposition your portfolio for optimal risk-adjusted gains. Historically, stocks tend to climb higher and faster after reaching new highs. Selling stocks at a new high could mean missing out on substantial returns. The S&P 500's recent performance underscores the importance of a well-informed and strategic approach to investing.
Even near all-time highs, some stocks offer better value and potential returns than others. Identifying these opportunities can be challenging but achievable in nearly any market environment. For those hesitant to pick individual stocks, investing in a broad-based index fund that tracks the S&P 500 remains a sound strategy. Such funds offer diversification and the potential to benefit from the overall market's performance.
