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The tech-heavy Nasdaq 100 index had to undergo a special rebalancing earlier this year when the weight of these seven stocks went over 55% of the index.
The weight of the top 10 stocks in the broad index has now increased to 32%, versus the average of 20% over the last 35 years. During the dot-com bubble, the total weight of the top 10 stocks topped out at 25%, according to Goldman Sachs.
Unlike during the tech bubble, these companies are highly profitable, and their valuations, though elevated, are comparable to those seen in recent history.
They have stable cash flows and low leverage and could continue to do well if the economy slows down while interest rates stay at elevated levels for an extended period.
We have seen a broadening of the rally lately. Since bottoming in late October, all sectors except Energy are up. Areas like Real Estate, Financials, and Consumer Discretionary have significantly outperformed the Technology sector over the past month.
The Invesco S&P 500 Equal Weight ETF (RSP - Free Report) has outperformed the market-cap-weighted index since its inception in 2003. Investors who are worried about a handful of stocks dominating funds tracking market-cap-weighted indexes have poured $9.5 billion into this ETF year-to-date.
To learn about RSP, First Trust NASDAQ-100 Equal Weighted ETF(QQEW - Free Report) , Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - Free Report) and iShares MSCI USA Equal Weighted ETF: (EUSA - Free Report) , please watch the short video above.
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Can Equal-Weighted ETFs Outperform the S&P 500 in 2024?
The biggest market story of the year is the outsized role of the Magnificent Seven stocks in the market rally. Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) , NVIDIA (NVDA - Free Report) , Meta Platforms (META - Free Report) and Tesla (TSLA - Free Report) now account for almost 29% of the S&P 500.
The tech-heavy Nasdaq 100 index had to undergo a special rebalancing earlier this year when the weight of these seven stocks went over 55% of the index.
The weight of the top 10 stocks in the broad index has now increased to 32%, versus the average of 20% over the last 35 years. During the dot-com bubble, the total weight of the top 10 stocks topped out at 25%, according to Goldman Sachs.
Unlike during the tech bubble, these companies are highly profitable, and their valuations, though elevated, are comparable to those seen in recent history.
They have stable cash flows and low leverage and could continue to do well if the economy slows down while interest rates stay at elevated levels for an extended period.
We have seen a broadening of the rally lately. Since bottoming in late October, all sectors except Energy are up. Areas like Real Estate, Financials, and Consumer Discretionary have significantly outperformed the Technology sector over the past month.
The Invesco S&P 500 Equal Weight ETF (RSP - Free Report) has outperformed the market-cap-weighted index since its inception in 2003. Investors who are worried about a handful of stocks dominating funds tracking market-cap-weighted indexes have poured $9.5 billion into this ETF year-to-date.
To learn about RSP, First Trust NASDAQ-100 Equal Weighted ETF(QQEW - Free Report) , Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - Free Report) and iShares MSCI USA Equal Weighted ETF: (EUSA - Free Report) , please watch the short video above.