How Nvidia is Shaping the S&P 500’s Performance in 2024
The S&P 500 Index is a well-known stock market index that tracks the performance of 500 of the largest U.S. companies. Many large-cap ETFs passively track the broad index, and investors use it as a benchmark to gauge the relative performance of their portfolios. This year, a unique phenomenon is impacting the S&P 500. A single stock has contributed over one-third of the S&P 500’s total return, which means its inclusion or exclusion in different market indices has made a big difference.
Nvidia, a leading semiconductor company in the artificial intelligence (AI) industry, is rapidly growing. Companies like Microsoft, Amazon, Google, and Facebook-parent Meta are spending billions on Nvidia’s computer chips to train their AI models. The company's strong earnings growth has caught investors' attention. The stock has gained almost +170% year-to-date and recently surpassed Apple as the second biggest S&P 500 holding. Due to its high index weight and strong return, Nvidia has contributed 33% of the S&P 500 Index’s year-to-date return.
How often does one company account for such a large portion of the index’s return? The answer is rarely. The bars in Figure 1 show the S&P 500 company that contributed the most to the index’s return by year. Between 2016 and 2023, the stock with the most impact contributed an average of one tenth of the S&P 500’s return. The biggest previous contribution occurred in 2020, when Apple contributed 23%.
We wanted to share this market statistic for two reasons. First, it is rare for one stock to account for a significant portion of the S&P 500’s return. This market is one for the history books. Second, Nvidia’s dominance has implications for portfolio analysis. Figure 2 shows how the S&P 500 would have performed if its holdings were weighted equally rather than by market capitalization. The market-cap weighted S&P 500 Index has gained +14.1% as of June 13th, while the equal-weighted version of the S&P 500 has only gained +4.4%. This year's performance shows that the headline return can overstate the average company’s performance, but this isn't always the case. Between 2000 and 2023, the equal-weighted S&P 500 outperformed its market-cap weighted peer 15 out of 24 years. It's important to look beyond the headline market return when analyzing portfolio performance.
The information and opinions provided herein are provided as general market commentary only and are subject to change at any time without notice. This commentary main contain forward-looking statements that are subject to various risks and uncertainties. None of the events or outcomes mentioned here may come to pass, and actual results may differ materially from those expressed or implied in these statements. No mention of a particular security, index, or other instrument in this report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security or index. The report is strictly an informational publication and has been prepared without regard to the particular investments and circumstances of the recipient.
Past performance does not guarantee or indicate future results. Any index performance mentioned is for illustrative purposes only and does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Index performance does not represent the actual performance that would be achieved by investing in a fund.