A funny thing happened on the way to the record books. Specifically, the S&P 500 that posted record highs on 6/1/2007 is far different from the S&P 500 that investors became obsessed with back on 3/24/2000.
What has changed over the last 7+ years? For starters, the S&P 500 of yesteryear had 42% in just two sectors — telecom and technology. Today, tech and telecom only account for 19% of the S&P 500’s direction. (Now that’s an amount that you might expect from a diversified market barometer.)
Another big change is the percentage growth from the smallest economic segments in the year 2000 — materials, utilities and energy. These 3 segments collectively represented a mere 10% of the S&P 500’s market-cap weighting in March of 2000. Now these segments account for 17% of the movement, with the biggest percentage growth coming from the energy sector.
Energy jumped 100% from 5.22% to 10.44% of the S&P 500 market representation
Utilities jumped 67% from 2.15% to 3.60% of the S&P 500 market representation
Materials jumped 25% from 2.42% to 3.05% of the S&P 500 market representation
Simply put, today’s S&P 500 index is more diversified than the index from 2000; the only sector of the 10 with a weighting of more than 15% is the financial segment of the economy. No doubt, its growth from a 13% weighting to a 21% weighting is due to the real estate boom. Nevertheless, one who invests in the 2007 version of the SPDR S&P 500 (SPY) is getting a far better mix of large companies from all parts of the economy.
Another interesting observation is the fact that the highest performing sectors year-to-date through 5/31/07 are… yep, you guessed it! Energy, utilities and materials. These sectors have the best year-to-date performance numbers. (In fact, few segments even come close to these drivers of U.S. and global infrastructure expansion.)
With many questioning the vitality of the current bull run, it makes sense to compare 2000 with 2007. Clearly, investing in the broader market through the SPDR S&P 500 (SPY) is less risky than in the year 2000… at least with regard to diversification across all economic sectors. Moreover, the 3 smallest sectors from 2000 (i.e., energy, materials and utilities) have turned up the heat with exceptional gains. Just be careful that you don’t get scorched!
Disclosure Statement: As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above.