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.)

YTD

Energy Select Sector SPDR (XLE) 16.5%
Materials Select Sector SPDR (XLB) 17.5%
Utilities Select Sector SPDR (XLU) 13.9%

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.

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