Why The S&P 500’s $US100 Billion Club Matters

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The S&P 500 isn’t driven uniformly by 500 companies.

Because the index is weighted by market capitalisation, the bigger companies have a bigger impact on the way it moves.

In a new note to clients, Morgan Stanley’s Adam Parker discusses the $US100 billion club: the companies worth more than $US100 billion:

There are 35 stocks listed in the US that each have a market capitalisation greater than $US100 billion. Combined, these stocks are $US6.9 trillion of market capitalisation today, representing 40% of the S&P 500’s market capitalisation and 44% of earnings… The fact is, these 35 names matter deeply for the performance of most benchmarks, and the competitive impact of these companies affects nearly all US companies at some level. For a long time, hedge funds had an anti-mega-cap bias, underweighting these names in favour of stocks less than $US100 billion in market capitalisation. Is that smart? This $US100 billion club is one where historically a sizeable amount of alpha can be generated…

So, 7% of the companies account for 40% of the S&P 500’s market cap and are responsible for 44% of earnings

Below is a list of the biggest S&P 500 companies based on Friday’s close via FinViz.

Mega caps
Mega caps