When you think of America’s stock market, what’s the first company that comes to mind? It’s likely one that has made you money or one that you are thinking of investing in. Or maybe you think of the “magnificent seven” – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. These tech giants have dominated Wall Street, and for good reason. Five of these companies were established in the past 30 years, and their market values have exceeded $1 trillion. In comparison, Europe’s stock market has never produced a $1 trillion company. The dynamism of these tech giants has propelled America’s stock market to outpace others.
But there is more to America’s stock market than just these seven companies. They represent only 1.4% of the 500 companies in the S&P 500 index. The remaining 98.6% is not well-characterized by these tech giants. In fact, these companies are substantially older and reflect a more mature market. For example, Berkshire Hathaway and Eli Lilly are among the top companies in this group, and they both have deep historical roots.
This maturity makes the S&P 493 less susceptible to market changes, offering a degree of protection during economic downturns. However, it also means that these companies may not experience the same level of rapid growth as the tech giants. The contrasting performance of the tech giants and the rest of the 493 companies in 2022 and 2023 reflects this dichotomy.
The dominance of the tech giants in the S&P 500 has led to questions about whether it truly represents the American stock market. Some believe that the headline index no longer provides an accurate benchmark. While many investors still track the index, it’s worth noting that the remaining 493 companies offer a more nuanced view of the stock market.
In the end, whether you’re a seasoned investor or just starting out, understanding the broader stock market beyond the “magnificent seven” can provide you with a more well-rounded view of the whole financial landscape.
For more financial insights and market analysis from our columnist, visit economist.com or check out our latest articles on how a third world war would impact investors, the resurging interest in hedge funds, and why it might be time to retire Dr. Copper. And if you’ve ever wondered how the Buttonwood column got its name, we have an article on that too!
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