How Nvidia is Shaping the S&P 500’s Performance in 2024
Written by:
Rob Santos
Chief Executive Officer
As CEO and founder of Arrowroot Family Office, I specialize in the overall management of the firm. I also work with affluent families on providing bespoke family office services, which include tax-efficient advisory and financial planning, M&A advisory, family governance and process advisory, and philanthropic initiatives.
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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 bars in Figure 1 show the S&P 500 company 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. Figure 2 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 isn’t always the case. Between 2000 and 2023, the equal-weighted S&P 500 outperformed its market-cap weighted peer 15 out of 24 years. It’s important to look beyond the headline market return when analyzing portfolio performance.
This material contains opinions of the author, but not necessarily those of Arrowroot Family Office LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this material may be reproduced or referred to in any form, without express written permission of Arrowroot Family Office, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.
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