March 9th marked the 8-year anniversary since the 2009 Financial Crisis lows, and one of the topics we wanted to write about surrounding the 8-year mark was S&P 500 sector weightings. Below is a table highlighting the percentage weighting of each sector as of the end of each year shown. We’ve included weightings as of the close on 3/9/09 (the “low”) as well.
Back in 1990, there were four sectors at the top of the food chain — Consumer Discretionary, Consumer Staples, Industrials, and Energy. The Technology sector had the second smallest weighting at just 6.34%, while the Financial sector was the fourth smallest. As the 1990s progressed, the US continued a huge shift from primarily a manufacturing economy to a services economy. Once the Dot Com bubble took hold, the Technology sector’s weighting shot up, and the Financial sector trailed it higher. By the end of the 90s, the Technology sector’s weighting had ballooned to 29.18%, which was more than 16 percentage points larger than the next closest sector. That was clearly not sustainable, and within 3 years the Tech sector’s weighting was more than cut in half.
From 2002 through 2006, the Financial sector had the largest weighting in the economy. At the end of 2006, the Financials made up 22.27% of the S&P 500, which was more than 7 percentage points above the next closest sector. The Financial sector exists to service the economy, and that fact alone should tell you that something isn’t right when the Financial sector is by far the largest sector of the market. Cue the Financial Crisis…
From the end of 2006 through the low on March 9th, 2009, the Financial sector’s weighting in the S&P dropped from 22.27% to 8.58%. At the lows, the Financial sector had dropped from the largest sector to the fifth smallest.
Over the last 8 years, we’ve seen the Technology sector remain on top the whole time, and as of March 2017, it’s weighting stands at 21.74%. That’s not nearly as elevated as it was in 1999, but it is starting to creep up to levels that make you squeamish.
We mentioned early on that back in 1990, the four largest sectors were Consumer Discretionary, Consumer Staples, Industrials, and Energy. Fast forward 27 years to today, and those four sectors are now the 4th through 7th largest. Technology, Financials, and Health Care currently hold the top three spots — making up nearly 54% of the market. The bottom three sectors make up less than 9% of the market today, while the bottom three made up 20% back in 1990. Along with the shift from manufacturing to services, the economy today is much more top heavy.
(One thing to note is that in 2016, S&P added the “Real Estate” sector in order to remove REITs from the Financial sector. In order to make an apples to apples comparison from a historical perspective, we’ve added the Real Estate sector’s current weighting back into the Financial sector.)
To see Bespoke’s full line of macro and micro research, sign up for one of our premium membership options today! You won’t be disappointed.