We’ve seen some pretty big moves in the weightings of sectors in the S&P 500 so far this year. Below is an updated look at S&P 500 sector weightings compared to where they stood at the start of the current bull market on March 9th, 2009 as well as at the end of 2012.
As shown below, the Technology sector remains the biggest in the S&P 500 at 17.72% of the index. The Financial sector ranks second at 16.72%, followed by Health Care (12.97%), Consumer Discretionary (12.18%) and Energy (10.51%). At the bottom of the list is Telecom Services at just 2.58% of the index. Materials and Utilities rank second to last at 3.31%.
The Financial sector has clearly made the biggest move of any sector in recent years. At the end of the financial crisis (start of the current bull), the Financial sector made up just 8.58% of the index. Since then it has nearly doubled its weighting up to 16.72%. This year alone, the Financial sector has added 1.09 percentage points to its weighting.
Health Care and Consumer Discretionary have also seen big jumps in their weightings this year, while the biggest losers have been Technology (-1.23%) and Energy (-0.53%).
Below is a chart showing the spread between the weightings of the S&P 500 Technology and Financial sectors. When the spread is above 0, the Technology sector has a larger weighting than the Financial sector, and vice versa. As shown, after losing significant ground to Technology during the financial crisis, the Financial sector is just 1 percentage point below the weighting of Tech. If the recent trend continues, it won’t be long before Financials overtakes Technology as the biggest sector of the market once again.
Is this a good thing? The Financial sector exists so that all of the other sectors of the economy can function and grow. When the Financial sector becomes the biggest sector of the economy, it becomes worrisome that the whole system is out of whack. That’s certainly what happened a few years ago, and it didn’t end well!
Below are charts showing the historical S&P 500 weightings for each of the ten sectors. In each chart, the red line represents the sector’s average S&P 500 weighting since 1990. At the moment, Technology, Financials, Health Care, Energy and Consumer Discretionary are above their historical averages, while Consumer Staples, Industrials, Materials, Utilities and Telecom Services are below their historical averages.
After hitting a multi-decade low in early 2009, the Consumer Discretionary sector has just moved back above its long-term average. On the flip side, it’s interesting that the three smallest sectors of the S&P 500 — Utilities, Materials and Telecom Services — are all below their long-term averages. Telecom Services has really faded this year, falling to its lowest weighting since 1990. Maybe it’s time to just combine it with another sector just as they did with the Transportation sector (merged with Industrials back in 2001)!
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