How Nvidia is Shaping the S&P 500’s Performance in 2024

Chart of the Month
Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

Photo Credit: Aiden Guinnip, Unsplash

The S&P 500 Index is a well-known stock market index that tracks the performance of 500 of the largest U.S. companies. Many large-cap ETFs passively track the broad index, and investors use it as a benchmark to gauge the relative performance of their portfolios. This year, a unique phenomenon is impacting the S&P 500. A single stock has contributed over one-third of the S&P 500’s total return, which means its inclusion or exclusion in different market indices has made a big difference.

Nvidia, a leading semiconductor company in the artificial intelligence (AI) industry, is rapidly growing. Companies like Microsoft, Amazon, Google, and Facebook-parent Meta are spending billions on Nvidia’s computer chips to train their AI models. The company’s strong earnings growth has caught investors’ attention. The stock has gained almost +170% year-to-date and recently surpassed Apple as the second biggest S&P 500 holding. Due to its high index weight and strong return, Nvidia has contributed 33% of the S&P 500 Index’s year-to-date return.

How often does one company account for such a large portion of the index’s return?

The answer is rarely.

The S&P 500 chart below shows the stock that contributed the most to the index’s return by year. Between 2016 and 2023, the stock with the most impact contributed an average of one-tenth of the S&P 500’s return. The biggest previous contribution occurred in 2020 when Apple contributed 23%.

Our team wanted to share this market statistic for two reasons. First, it is rare for one stock to account for a significant portion of the S&P 500’s return. This market is one for the history books. Second, Nvidia’s dominance has implications for portfolio analysis. The chart shows how the S&P 500 would have performed if its holdings were weighted equally rather than by market capitalization. The market-cap-weighted S&P 500 Index has gained +14.1% as of June 13th, while the equal-weighted version of the S&P 500 has only gained +4.4%. This year’s performance shows that the headline return can overstate the average company’s performance, but this is not always true. Between 2000 and 2023, the equal-weighted S&P 500 outperformed its market-cap-weighted peers 15 out of 24 years.

Looking beyond the headline market return is essential when analyzing portfolio performance.


Stocks with the Biggest Contribution to the S&P 500’s Total Return

Individual Stock Contributions to S&P 500's Return

S&P 500 YTD Return (Market Cap vs Equal Weight)

2024 S&P 500 Year-to-Date Price Return
 

Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.

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Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 18 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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