One reason why bear markets lose steam as they continue, and why energy tanking on Monday will matter less than you think

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by TheHappyHawaiian

Certain sectors get hit harder in various recessions, and some always get hit hard in all recessions (consumer cyclical for example), but as these sectors decline, they become a smaller and smaller piece of the S&P500 pie by market cap. So if Energy was 5% of the S&P prior to the downturn and gets cut in half, thats 2.5% off of the overall index. But now if it gets cut in half again it’s only 1.25% off the overall index.

Same with all the physical retail thats getting pummeled right now. Look at the market caps of all these companies, if you combine the market caps of all physical retailers together it doesn’t even add up to an Amazon, Microsoft, or Google. Those companies were already the driving force behind the market and after this decline they are even more so the driving forces.

Current Sector Weightings of the S&P

Using the wayback machine to view the weightings on 5/12/2019 (almost 1 year ago)

Sector 05-19 Weighting 04-20 Weighting
Technology & Communication Services 26.95% 32.92% (+5.97%)
Healthcare 13.54% 15.55% (+2.01%)
Financial Services 16.05% 13.79% (-2.26%)
Consumer Cyclical 12.25% 9.61% (-2.64%)
Industrials 10.19% 8.70% (-1.49%)
Consumer Defensive 7.64% 8.13% (+0.49%)
Utilities 3.23% 3.56% (+0.33%)
Real Estate 2.43% 3.00% (+0.57%)
Energy 5.22% 2.65% (-2.57%)
Basic Materials 2.49% 2.09% (-0.40%)

Note Amazon is considered consumer cyclical even though it could be considered tech. So it is helping prop up that sector in a major way and even with that it has declined significantly in share.

If you are wondering which companies fall where this is a good source:

Other note: at some point energy declining is more of a credit risk story, so it can drag down financial services stocks who have large energy exposure. We are this point now and have been there since the Saudi announcement that brought oil from $40 to $30 overnight. Just pointing out that the declines in energy stocks themselves have less effect on the S&P at this point.


Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.


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