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Looking for Froth in S&P 500 Sector Weightings

No single sector in the S&P 500 has raced ahead of the others, but that's not necessarily comforting.


With the S&P 500 Index recently crossing 2,000 en route to new record-highs, more investors are looking for evidence of an equity bubble. But, as many have pointed out, this push into record territory is unlike past surges in that it hasn't been driven exclusively by any one sector. This is in contrast to when technology stocks led the way during the dot-com bubble of the late 1990s and when financials played a prominent role in the rally prior to the late-2007 onset of the credit crisis. There hasn't been a consistent face of this bull market. Sectors have cycled in and out of favor, with the relative constant being the market’s march higher.

This balance shows in the S&P 500's current sector weightings. When a particular sector outperforms the others, it grows as a percentage of the index and at the expense of its counterparts. But no one sector today is even 20% of the index. Tech stocks come closest, with 19.3% of the index. But this figure is far below the level of 14 years ago when tech claimed 32.6% of the index. Tech stocks have performed particularly well over the past year, gaining about 32% on average, but over the past five years both consumer discretionary/cyclical and health-care stocks have fared slightly better.

Kevin McDevitt does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.