We’ve written quite a bit about how the S&P 500’s returns can be skewed by the largest stocks.  For context you can read all about it here.

Today we’d like to provide yet another example.

YTD the S&P 500 is up 21%.  That’s not to say each of the 500 stocks is up 21%.  Rather the index return is driven by the so-called Magnificent Seven:

  1. Apple
  2. Amazon
  3. Alphabet (Google)
  4. Nvidia
  5. Meta (Facebook)
  6. Microsoft
  7. Tesla

The Magnificent Seven are up a whopping 105% while the other 493 stocks are up only 7%.

 

Therein lies the danger of believing an investment in an S&P 500 index fund or ETF is an investment in diversification.

A longer view is even more interesting.  Many of the big tech companies producing 2023’s gains were crushed in 2022.

  • Alphabet (Google) was down 46%
  • Amazon was down 56%
  • Nvidia was down 66%
  • Meta (Facebook) was down 77%

Whoa!  Double whoa!  That’s quite a wild ride.

When all’s said and done the Magnificent Seven barely – just barely – eeks out a victory over the index but does so with MUCH GREATER volatility.

 

Caveat emptor.