Market Snapshot: S&P 500 Participation Trophy Is a Second Half Story

While U.S. market concentration remains high, index constituent participation caught fire in the second half of the year. As shown in the chart, 2023 saw just 27% of S&P 500 companies outperform the index, the lowest number in a 30-year period. The start of 2024 seemed poised for a repeat, when only 25% of companies outperformed the index through the first half of the year. The second half of the year, however, tells a very different participation story with 57% of constituents outperforming the index, well above the 30-year average of 46% (annualized).

Concentration of the S&P 500 remains at historic levels with the top six stocks¹ accounting for about 30% of the index by weight. These six stocks contributed 62% of the S&P 500 return for the first six months of 2024,² but that share has decreased in the second half of the year. As of November 30, 2024, these six stocks have accounted for approximately 43% of the S&P 500 return³ for 2024. In other words, the S&P 500 has been experiencing broader market participation outside of the “heavyweights” in the second half.

We believe diversification remains a cornerstone of robust portfolio construction over full market cycles. As these passive indices become less diversified, the benefits of owning a diversified index decline. Exposure to a concentrated large cap passive strategy offers favorable returns when the top weights are outperforming. But with signs of broader market participation occurring, the concentration — or lack of diversification — becomes a potential headwind to performance relative to more diversified large cap portfolios. We continue to believe diversifying some U.S. large cap passive exposure to a less concentrated active strategy offers an attractive risk/reward.