S&P 500 “Top 10:” Market capitalization vs. Income weight


There are some similarities between the current one and the S&P 500 of the late 1990s.

Ed Yardeni has pointed out in recent years that the “profit weight” of big names in tech in the S&P 500 is much higher today than it was in the late 1990s, when technology and technology. the big caps groweighth and dot- The com frenzy began to crumble in the early 2000s.

The earnings weighting today of the top 10 S&P 500 stocks remains below the market cap weighting, but the difference is less today than in the late 1990s.

IBES by Refinitiv – from what they told me previously – either didn’t have this data available or they just didn’t provide it to subscribers, have now provided me with the data, since the last request for last week.

Here’s the market cap weighting versus the earnings weighting of the top 10 individual stocks in the S&P 500:

  1. Apple (NASDAQ :): 6.05% market cap weight, 4.59% earnings weight
  2. Microsoft (NASDAQ :): 5.94% market cap weight, 3.67% earnings weight
  3. Amazon.com (NASDAQ :): market cap weight 3.94%, earnings weight 1.48%
  4. Alphabet (NASDAQ :): 4.38% of market cap weight, 1.84% of earnings weight (Alphabet’s total capitalization mkt weight is the sum of the two capitalization weights GOOGL + GOOG mkt ).
  5. Facebook (NASDAQ 🙂 2.22% market cap weight, 1.98% earnings weight
  6. You’re here (NASDAQ :): 1.6% market cap weight, 0.26% earnings weight
  7. Nvidia (NASDAQ :): 1.45% market cap weight, 0.58% earnings weight
  8. Berkshire class B (NYSE :): 1.36% market cap weight, vs. 1.22% earnings weight
  9. JPMorgan Chase & Co (NYSE: 1.29% market cap weight, vs 2.54% earnings weight
  10. Johnson & johnson (NYSE :): 1.14% market cap weight, vs. 1.47% earnings weight
  • Market capitalization rankings are taken from Morningstar’s website, SPDR® S&P 500 (NYSE :), as of September 24, 2021
  • GOOG and GOOGL (alphabet symbols) are in the S&P 500 top 10 by market capitalization
  • To qualify this comparison, the market cap weights are as of September 24, 2021, while the “earnings weight” for each company is as of June 30, 21. So readers look at the current weights of mkt caps, but these are maintaining the 90 day old “earnings weights” based on reported last quarter results.
  • The top 10 market cap weighting is 30%, while the top 10 income weight is 19.6%. (It’s actually a little bigger difference than expected.)

Here are some thoughts and comments on the ranking:

Apple and Microsoft are said to account for nearly 50% of the tech sector’s market capitalization (maybe a little lower today, closer to 45%). However, the two largest stocks in the S&P 500 now make up 11.99% of the S&P 500’s total market cap and 8.26% of its earnings weight. (Think about it …)

The two biggest weights in the sector are Amazon and Tesla. The two stocks combine to have a market cap weight of 5.54%, but only an earnings weight of 1.74%. There is no doubt that Tesla (among the top 10 market cap weightings in the S&P 500 today), most closely resembles a NASDAQ stock from the late ’90s in terms of the relative valuation between market cap and weight. earnings than any of the other Top 10 positions, with only a 0.026% earnings weighting.

The stocks where the market capitalization and earnings weighting are close to both – outside of Apple and Microsoft – are Facebook and Berkshire (Class B).

Finally, the most interesting aspect of this split is that JP Morgan (JPM) and Johnson and Johnson (JNJ) have earnings weights above their market cap weights.

Given all of this, would it be safe to assume that JPM and JNJ potentially have more potential than stocks with market capitalization greater than earnings weighting?

But it’s hard to say. The point is that the “secular bull markets” are highlighted by “the expansion of the EP”. The best and most classic example of this was Walgreens (NASDAQ 🙂 in the 1990s. It started the decade at about 10 times forward estimates and was increasing EPS by about 10% per year, and by the end of the years. 1990, due to the Walgreens ‘large-cap growth’ label (and also due to its decade of earnings growth), the action ended. the 90s and entered the year 2000 with a PE ratio of 40x and an annual EPS growth rate of close to 20%.

And then, like many growth stocks that peaked in the 2000s, WBA did NOT hit a new all-time high until 2013.

Assessment today compared to the end of the 90s

Sectoral assessments 2000 Summit vs today

Source: CFRA (Lowry)

The CFRA and Lowry Research hosted a webinar on September 15, 2021 on these market capitalization issues and the similarities to the S&P 500 today.

From the bar chart above, most sectors of the S&P 500 today, including tech, are trading at a lower PE than in the late 90s.

Summary / conclusion

The point is, the 30% market cap weighting and 19.6% earnings weighting of the top 10 names in the S&P 500 was a bit of a surprise when IBES by Refinitiv provided me with the data last week. Again, the “earnings weights” are from the end of the quarter on June 30, 21 and therefore are 90 days old.

For readers, this is another “measure of risk” worth discussing given the similarities between the S&P 500 today and the S&P 500 in 1999. Readers can tell me if they find it. a value in the information or not.

Remember, take everything you read with a lot of skepticism and detachment. Context is important. Markets change rapidly.

And a big thank you to the staff at Refinitiv, for providing the earnings weights for the top 10 S&P 500 stocks. Previously, this data was only provided as earnings weights within the industry, not the S&P 500. .

Finally, the interesting question for me is how do the S&P 500 companies rank in terms of market cap relative to earnings weighting, and do companies like JP Morgan and Johnson & Johnson represent value propositions being given that their earnings weight is greater than their caps market?

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