The stock market today would be completely unrecognizable to an investor from the 1950s or 1960s. Industries have changed significantly and so have the companies within them. Despite these changes, the S&P 500 has remained a consistent measure of corporate America.
The Origin Story
The S&P 500 began in its modern form in 1957, building on Standard & Poor’s earlier efforts to track stock market performance. It aimed to give investors a broad representation of the U.S. large-company stock market. By tracking the 500 largest publicly traded companies, the index offered a more comprehensive picture of corporate America than a handful of individual stocks could provide (looking at you, Dow Jones Industrial Average).
Of course, the companies in the index today are not the same ones that were included when it started. Companies are added and removed as the market changes, allowing the index to evolve and reflect the businesses that have become more important to the U.S. economy.
The Sector Transformation
The S&P 500 has changed significantly since 1957, especially in the types of companies that make up the index. Technology has become a much bigger part of the market, while industries like manufacturing and energy make up a smaller share than they once did.
These examples help show how the market has shifted:
- Technology: The growth of computers, the internet, smartphones, and now AI has turned technology companies into some of the country's largest businesses.
- Energy: Oil and gas companies once had a much bigger presence in the index. They still play an important role, but other industries have grown faster.
- Healthcare: Medical advances and rising demand for health services have made health care a larger part of the market.
- Consumer businesses: Shopping has moved beyond brick-and-mortar stores, with companies like Amazon changing how people buy products and growing well beyond their earthbound predecessors.
The biggest takeaway is that the S&P 500 reflects the economy at a given point in time. The companies leading the market today aren't necessarily the ones that led it 50 years ago, and that will be true 50 years from now.
Different Characteristics
In earlier decades, S&P 500 industries were more tangible. Think of huge factories, sprawling retail empires, oil companies, or countrywide restaurant franchises. Investors placed much more emphasis on factory output, inventory, sales, and the cost of building materials.
Today’s market includes many companies whose most valuable assets are software, intellectual property, networks, and data. Tech companies can grow at the speed of light without building physical factories like a manufacturer would. Scalability has become much easier. However, it can often lead to lofty valuations and intense competition. While scaling a business is easy and the same holds true for your industry competitors.
Still, some fundamentals remain unchanged. Companies still need to generate profits, manage costs, compete effectively, and adapt to customer needs. Innovation may change the tools, but it does not eliminate business risk.
What History Teaches Today
Looking at the S&P 500's history offers several lessons for investors:
- Market leadership changes: Today's largest companies may not lead the market in the future. Owning the market, though, means investors have exposure to future winners.
- Diversification matters: Owning many companies reduces reliance on individual businesses, although the largest stocks can still heavily influence the index.
- Volatility is normal: Market declines happen, and investors need to be prepared for periods of uncertainty.
- Patience is key: Selling during a downturn can mean missing part or all of the recovery.
- History isn't a guarantee: Past bull and bear markets don't predict when the next one will happen.
Be sure to have a conversation with your financial advisor to learn more about how the market has changed and how it might impact your portfolio now and in the future.
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We have helped our clients answer these questions and more. If you want a clear understanding of your financial future, and need help making changes to reach your goals, schedule a consultation and we can get started.
The material has been gathered from sources believed to be reliable, however Bedel Financial Consulting, Inc. cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through Bedel Financial Consulting, Inc. Advisory services are only offered where Bedel Financial Consulting, Inc. and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place.
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