Market Cap vs Earnings Weights for SP 500 Sectors

Here’s a table that Refinitiv publishes only occasionally, but it’s valuable since it gives perspective on the SP 500 sector’s market cap weight in the benchmark, versus that same sector’s earnings weight.

The problem in the late 1990’s for large-cap tech wasn’t just the monstrous rally in the last 5 years of the decade, it was that the market cap ultimately dwarfed the earnings weight for technology in March, 2000, – something to the tune of a 35% market cap weight versus a 13% earnings weight – by the late 1990’s, early 2000’s.

Today, note tech’s market cap weight today of 30%, versus tech’s earnings weight of 23%: readers can see the ratio is much more closely aligned today than the late 1990’s.

Maybe more interesting is that the Communication Services sector – Meta and Alphabet are the largest two names – have an earnings weight larger than the sector’s market cap weight: 10.2% earnings weight versus a 9% market cap weight.

In Consumer Discretionary where Amazon, Tesla and Netflix are found, the market cap weight of the sector is 10.5%, versus the earnings weight of 7.7%, which again, is a reasonable ratio.

Summary / conclusion: The breakout in the SP 500 last week above the January ’22 highs seems significant. The Nasdaq 100 broke above the old high in late December ’23, while the Nasdaq Composite has not breached it’s November ’21 high print of 16,212.23

While everyone talks market PE’s in terms of valuation (and should) the market cap weight to earnings weight is another metric or ratio that bears watching. This ratio was flagged many times in the late 1990’s as a cautionary warning of what was to come, and it arrived in March, 2000.

There are a lot of similarities to today’s stock market vs the late 1990’s, but the market cap weight to earnings weight ratio is far more reasonable today than 25 years ago.

(Reach out to Tajinder Dhillon of Refinitiv LSEG, ( if you are curious about Refinitiv’s earnings services and mayle he’ll send you a copy of the Refinitiv report published today. There are some other good slides in the report that will get posted in the next few days.

None of this is advice or a recommendation. Past performance is no guarantee or suggestion of future results. All data sourced from IBES data by Refinitiv. Readers should gauge their own comfort level with market volatility, and adjust accordingly if needed.

Thanks for reading.


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