Apple reported earnings yesterday and beat expectations on revenue and adjusted earnings per share.  After hours the stock rose as much as 3.7% on the news, but why does this matter?  We don’t trade individual stocks, and I don’t know about you but I don’t personally own Apple stock.  I did many years ago after I fell in love with my very first iPod, but I sold that position about 13 years ago and haven’t owned Apple since.  (oops?  Nah no regrets, always have to look forward)

But the reason Apple matters even if you don’t directly own the stock is because it’s the largest company in the world and as a result, it makes up the largest percentage of the S&P 500.

The S&P 500 is not an equal weight index.  Instead it’s based on market capitalization so the larger the company is, the larger a share of the index it makes up.

Here’s the 10 largest components of the S&P 500 Index:

So during earnings season, even if people don’t own the individual stocks it’s still important to keep an eye on the earnings dates of the largest component companies in the S&P 500.  And as you can see in the chart above, 9 companies make up nearly 20% of the S&P 500 so it’s pretty important how those companies perform.

It’s also meaningful to track how the broad sectors are doing which can also give an indication of how the S&P 500 will behave.

Here’s the current S&P 500 sector weightings:

Sector weightings have naturally changed over the years as our world changes, and in a future post I’ll talk about that in more detail but for now the take away is that technology is becoming more and more important not only in our daily lives, but in the performance of our equities portfolios.  It’s not just the Nasdaq that’s tech heavy.  The S&P 500 is becoming increasingly more so as well.

 

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