Winner-Take-All Rally Spurs Big Distortion Among S&P 500 Members

The S&P 500’s pitch is simple. Own it and get exposure to the biggest of the big among US firms. Lately, it’s gotten harder to maintain that point of distinction.

Chalk it up to the lopsided nature of this year’s equity advance, which has pushed megacap technology makers ever higher while punishing practically everything else. With almost 250 companies in the S&P 500 nursing losses in 2023, roughly one in five fails to meet the $14.5 billion size threshold set for new members.

That’s about twice as many as normal, according to Bloomberg Intelligence strategists Wendy Soong and Gina Martin Adams, who studied quarterly data going back to 2008.

One is S&P 500 cellar dweller Sealed Air Corp., which after falling 31% this year has a market value of $5 billion, less than 225 firms in the S&P Midcap 400. Now 35 companies in the mid-cap gauge are larger than the smallest 50 members of the S&P 500.

It’s a lesser noticed consequence of the lopsided rally that propelled a handful of artificial intelligence super stocks light years past the rest. At the other end of the size spectrum, companies left behind by the rally have shrunk to the point where they’ve become hard to tell apart from members of mid- and even small-cap indexes.