SP 500 Earnings: Market Cap Weight vs Earnings Weight Updated

A reader asked last week what was driving the SP 500 earnings growth, and while you could write a book about it, the fact is, the biggest market cap stocks, some of which have the larger earnings weights, are pushing the market higher.

The other reasons are that 1). it’s a healthy economy, as evidenced by Q4 ’23’s Real GDP growth rate printed 3.4% Thursday morning 3/28, 2.) the Fed/FOMC stopped raising the fed funds rate 8 months ago, 3.) inflation is “disinflating” so to speak, although it’s been a lumpy path to the Fed’s ultimate goal of 2%, 4.) Interest rates have remained relatively stable since the 10-year Treasury peaked last October at 5%.

Market cap weight vs earnings weight: 

Here’s how the top 10 market cap weights (as of 3/27/24) in the SP 500 compare to their current earnings weights:

  • 1.) Microsoft: 7.10% mkt cap wt vs a 4.58% earnings weight
  • 2.) Apple: 5.7% mkt cap wt vs a 4.79% earnings weight
  • 3.) Nvidia: 5.05% mkt cap wt vs a 2.97% earnings weight
  • 4.) Amazon: 3.72% mkt cap wt vs a 1.67% earnings weight
  • 5.) Meta: 2.46% mkt cap wt vs a 2.05% earnings weight
  • 6.) Alphabet: 3.71% mkt cap wt (combined) vs a 3.62% earnings weight
  • 7.) Berkshire Class B: 1.72% mkt cap wt vs a 1.77% earnings weight
  • 8) Eli Lilly: 1.41% mkt cap wt vs “unknown” earnings weight
  • 9.) Broadcom: 1.31% mkt cap wt vs “unknown” earnings weight
  • 10.) JPMorgan: 1.31% market cap wt vs a 2.66% earnings weight

Source: Morningstar for market cap weights, LSEG for earnings weights

Total Top 10 market cap weight: 33.49%

Total Top 10 earnings weight: 24.11% (w two unknowns)

Just think about this data: within 10 names in the SP 500 (and that’s combining Alphabet, you have 1/3rd of the entire SP 500 market cap and 25% of the earnings weight.

What’s more interesting is two financial names – Berkshire and JP Morgan – have earnings weight higher than their market cap weights.

The one stock with an earnings weight of 1.87% which was not mentioned was Exxon, with a market cap weight of 1.03%.

It’s a long weekend so more to come on SP 500 earnings and other topics.

Summary / conclusion: Financials and energy sectors are usually viewed as “value” sectors and that may be because – even with large cap financials – the earnings weight is often larger than the market cap weight for these sectors / stocks. Within technology, the new or emerging tech names that are higher growth, usually have much smaller earnings weights than their market cap weights, which might be another way to evaluate their risk. A good example of this was Tesla: it’s market cap weight far exceeded it’s earnings weight, and with the drop in the stock, those two are more aligned. With Amazon today, and it’s slower revenue growth and greater cash-flow, readers might see Amazon’s earnings weight close the gap with it’s market cap weight over the next few years.

None of this is advice or a recommendation. Past performance is no guarantee of future results. Investing can involve loss of principal, even over short periods of time.

Thanks for reading.


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