Howdy folks,
When you hear that the S&P 500 is up or down, it’s easy to assume that all 500 companies in the index are moving in unison. But that’s rarely the case.
In fact, a small handful of stocks often carry the weight of the entire index, and that can give traders a skewed view of what’s really happening in the market.
Let’s dig into why this happens — and what it means for your trading.
The Magnificent 7 and Their Outsized Influence
You’ve probably heard of the “Magnificent 7” — tech giants like Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Google (GOOG), Tesla (TSLA), Nvidia (NVDA), and Meta (META).
These companies are some of the biggest in the world, and because the S&P 500 is weighted by market cap, they have a disproportionate influence on the index.
For example:
Together, these 7 stocks make up about 25% to 30% of the S&P 500’s total value. (actually they recently hit a record 40% as I mentioned a few weeks ago)
That means the performance of just a few companies can move the entire index — even if the other 493 stocks are barely budging.
If Apple has a great day, it might lift the S&P, but that doesn’t mean the market as a whole is thriving.
Why This Matters for Traders
Here’s the problem: When you rely solely on the S&P 500 to gauge the market, you might be missing the bigger picture.
Take this scenario:
The S&P 500 is up 1%, but the gains are driven entirely by the Magnificent 7.
Meanwhile, small-cap stocks in the Russell 2000 or mid-sized companies in the S&P 400 are flat or even down.
If you’re not paying attention to what’s happening beneath the surface, you might assume the market is healthier than it actually is.
How to Avoid Being Misled
So, what can you do to get a clearer picture of the market?
Look Beyond the S&P 500
Check other indices like the Nasdaq (for tech-heavy performance) or the Russell 2000 (for small-cap stocks). This will give you a more balanced view.
Dig Into Sector Performance
Sometimes the overall index might be up, but certain sectors like energy or healthcare could be struggling. Pay attention to sector-specific ETFs or indices.
Analyze Breadth Indicators
Market breadth tells you how many stocks are advancing versus declining. For example, if only 20% of stocks in the S&P 500 are rising but the index is up, that’s a sign the gains are narrowly concentrated.
What This Means for Your Trading
Understanding the influence of big stocks on indices helps you make better decisions. Instead of assuming the market is bullish or bearish based on the S&P alone, you’ll know to dig deeper.
For example:
If the Magnificent 7 are carrying the S&P higher, but the rest of the market is lagging, it might not be the best time to load up on broad-based ETFs.
On the flip side, if smaller stocks in the Russell 2000 are outperforming, it could be a sign of growing risk appetite — and an opportunity for traders willing to dig into the details.
Final Thoughts
The S&P 500 is a great benchmark, but it’s not the whole story. By looking beyond the headline numbers and understanding how a small group of stocks can skew the index, you’ll be better equipped to spot real opportunities and risks.
Markets are more complex than they seem at first glance. Take the time to dig deeper — it can make all the difference in your trading.
Stay sharp out there,
— Geof Smith
P.S. With Trump doubling down on nuclear power, uranium is looking better than ever. I’ll share exactly how I’m positioning myself tomorrow, Wednesday the 22nd @ 1:30 PM ET. Register your spot now!
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