S&P 500 Index in 2023: "Stormy Winds" with frequent changes in the top 50 market cap, NVIDIA stands out, and cruise stocks make a comeback...

Zhitong App has learned that the top 50 most valuable component companies in the S&P 500 index currently account for about 56% of its total weight, and the average ranking change (up or down) of the top 50 component companies in terms of market capitalization this year has reached 9 digits, the highest level since at least 2013, almost doubling compared to 2019. At the same time, the median valuation gap between the top 50 component companies has more than doubled since 2013, reaching approximately $7 billion. As the gap between the top five high-market-cap component companies in the S&P 500 index and other companies widens to an alarming level, the ranking volatility of the component companies ranked 6-50 in terms of market capitalization has also reached its highest point in 10 years.

These trends indicate that as the S&P 500 index becomes increasingly top-heavy, the "battle for funds" among the other component stocks, excluding the top five giants (Apple, Microsoft, Alphabet-C, Amazon, and Nvidia), is intensifying for global investors.

Apple (AAPL.US), the highest market-cap component stock in the S&P 500 index, known as the "king of stocks," currently has a market capitalization that is almost larger than the entire French stock market, while the CAC 40 index, the benchmark stock index of the French stock market, has reached a historical high this year. This means that investors are increasingly relying on a smaller number of large-cap stocks to achieve returns. The combined market capitalization of the top 10 component companies in the S&P 500 index is now equivalent to the total market capitalization of the component companies ranked 416th and below. In 2013, this number was only 294.

"When your best players score the most points, this is what happens," said Todd Sohn, an ETF strategist at Strategas Securities LLC, in an interview. "They're doing what they're supposed to do, and then you have to make sure that the bench—the rest of the index—follows their lead in trading, otherwise, you're going to have a real problem."

The trillion-dollar club has eaten everyone's lunch—currently, the top five giants account for nearly a quarter of the weight of the S&P 500 index.

Sohn said that the volatility in rankings can also be partially attributed to the COVID-19 pandemic, as it suddenly changed the global business model, fundamentally altering the overall valuation of technology companies. Among the companies that entered the top 50 this year, several seized the historic opportunities brought about by the pandemic, including Salesforce Inc (CRM.US), AMD (AMD.US), and Intel Corporation (INTC.US).Intuit Inc (INTU.US), Boeing Company (BA.US), Netflix (NFLX.US), and Qualcomm (QCOM.US).

The outstanding performance of the "Big Seven Tech Giants" has been described by Goldman Sachs' stock research team, led by Chief US Equity Strategist David Kostin, as the "decisive feature of the US stock market in 2023". They have been the main contributors to the S&P 500 index's increase of over 23% this year, with Nvidia leading the way. Goldman Sachs' recent "2024 US Stock Market Outlook" report shows that US stocks have never been so "top-heavy" - this is the first time that the S&P 500 index has been dominated to such an extent by seven stocks.

Goldman Sachs strategists have released a report stating that the stock prices of the "Big Seven Tech Giants" are expected to continue to rise, and the S&P 500 index is also expected to further increase in 2024.

Andrew Slimmon, Senior Portfolio Manager of US Equities at Morgan Stanley, recently released a report stating that the US economy will not collapse under the pressure of aggressive rate hikes by the Federal Reserve. He is bullish on the US stock market in 2024 and emphasizes that after a significant increase in 2023, the "Big Seven Tech Giants" are likely to lead the US stock market again next year. The seven tech giants in the US stock market, known as the "Magnificent Seven," include Apple, Microsoft, Alphabet-C, Tesla, Nvidia, Amazon, and Meta Platforms.

Hottest investment target in the US stock market in 2023: Nvidia

Nvidia (NVDA.US) was undoubtedly the hottest investment target in the global stock market in 2023, thanks to the AI investment frenzy sparked by the emergence of ChatGPT last year. Nvidia's stock performance in 2023 was exceptionally impressive. So far this year, Nvidia's stock price has soared by an astonishing 230%. This achievement not only easily surpassed the S&P 500 index but also ranked first among the "Big Seven Tech Giants" and even led the S&P 500 index, making it the "one-of-a-kind" in the 2023 S&P 500 index.

According to compiled institutional statistics, Nvidia is the first S&P 500 component company in at least 20 years to fall out of the top 10 at the beginning of the year but eventually make it into the top five.Due to the historic AI boom in global enterprise AI deployment, the demand for AI chips has surged, leading to a market value growth of approximately $829 billion this year. Social media giant Meta Platforms (META.US), the parent company of Facebook and Instagram, has also seen a significant increase in market value. The company's stock price has rebounded from the downward trend in 2022, with a market value growth of around $582 billion this year.

As the market has already set high performance expectations, the epic stock performance this year may indicate relatively lower returns next year if the performance fails to meet the valuation. Wes Crill, Senior Investment Director at Dimensional Fund Advisors, stated in an interview, "Once a company enters the top ten market cap stocks in the US stock market, its subsequent return rate is equal to or slightly lower than the overall market level."

The most eye-catching sector in the S&P 500 index this year: cruise lines

Royal Caribbean Cruises (RCL.US) has experienced a "rebirth from the ashes" amidst the cruise industry crisis triggered by the COVID-19 pandemic. Its market value ranking has risen by a staggering 165 places, currently ranking 252nd among S&P 500 index companies, surpassing well-known companies such as Warner Bros. Discovery (WBD.US) and Delta Air Lines (DAL.US). Another major cruise line giant, Carnival Corporation (CCL.US), has risen by 151 places in the ranking, entering the 301st position among S&P 500 index constituents. Royal Caribbean Cruises has seen an astonishing increase of 145% this year, ranking second only to NVIDIA and Meta in terms of year-to-date gains among S&P 500 index constituents.

Cruise lines have seen the largest increase in the S&P 500 index - Royal Caribbean and Carnival rebounded from low stock prices

The market value rankings of travel and entertainment companies in the S&P 500 index, such as Expedia Group (EXPE.US), Live Nation Entertainment (LYV.US), and Hilton Hotels (HLT.US), have all risen by 40 places. This is mainly due to the continued strong demand for consumer projects in the service sector, such as dining services and leisure travel, which have been booming in the United States this year. The robust recovery of the service industry is also a crucial factor supporting US GDP.

A "forgotten" year: renewable energy

Enphase Energy (ENPH.US), whose market value once exceeded $36 billion at the beginning of this year, has seen its total market value shrink by nearly half, dropping 141 places to 352nd place. This is mainly due to the high interest rates brought about by the Federal Reserve's aggressive rate hike cycle since 2022, which has reduced the expenditure on capital-intensive solar projects.And concerns about the oversupply in the entire renewable energy supply chain and the expansion of tariff barriers. SolarEdge Technologies (SEDG.US), the global leader in the renewable energy industry based in Israel, has fallen by about 67% since the beginning of this year, with a current market value of only $5.5 billion, and has therefore been completely removed from the index.

In addition to renewable energy companies, the total market value of companies that were once favored by Wall Street, such as Moderna Inc (MRNA.US), Dollar General Corp (DG.US), Albemarle Corp (ALB.US), AES Corp (AES.US), and FMC Corp (FMC.US), has dropped by at least 95 places this year, totaling a decrease of about $90 billion.

Furthermore, overall, the majority of companies in the S&P 500 index have experienced minimal changes in their rankings, with less than 20 places of variation for nearly half of the companies. From an overall perspective, there are more companies whose rankings have dropped than those whose rankings have risen, with 10 companies having almost no change in their rankings.

The rankings of nearly half of the companies in the S&P 500 index have changed by less than 20 places - there are more companies whose rankings have dropped than those that have risen, and 10 companies have had no change in their rankings.

The "youngest" companies in the S&P 500 index

Since joining the index in March of this year, the stock price of Fair Isaac Corp (FICO.US), the company behind FICO credit scores, has risen by over 60%. It is currently ranked 272nd in the index. Assuming the company was included in the index from January 1st, its ranking would rise by nearly 117 places. Although Blackstone Group (BX.US) joined the index after the September rebalancing, it is currently only in the top 50, making it the highest-ranked newly added component company in terms of market value.

Companies "leaving" the S&P 500 index this year

Among the companies in the S&P 500 index, 15 stocks have been replaced, including Silicon Valley Bank, Signature Bank, and First Republic Bank, which were declared bankrupt during the US banking crisis in March and delisted after the banking crisis. The 11 companies that were removed from the S&P 500 index and are still trading have seen a cumulative decrease in market value of $33 billion, with SolarEdge Technologies Inc., Advanced Auto Parts Inc (AAP.US), and DISH Network Corp (DISH.US) accounting for about two-thirds of the total market value decrease.