Same Story on Repeat. Once Again The S&P 500 Index Leads in 2024

by | Jan 9, 2025 | Market Commentary, Market Performance, Uncategorized

In 2017 Warren Buffett is quoted as saying,“Consistently buy an S&P 500 low-cost index fund.  Keep buying it through thick and thin and especially through thin.” This advice has certainly been extremely lucrative since 2017. I would go so far as to say the S&P 500 is currently in a very “thick” price environment (where prices versus earnings are above their long-term averages).

The Standard and Poor’s 500 Index (S&P 500) is composed of the 500 largest public companies in the U.S. This index does not hold international-based stocks or smaller U.S. stocks. The S&P 500 has dominated other areas of the investment market for the past 11 years. The question is, how long can this trend sustain? 

The table below compares the S&P 500 Index with other major indices on an annualized basis for the past 11 years. International stocks have only outperformed the S&P 500 two of the years–in 2022 and 2017. U.S. small cap stocks and U.S. real estate fared a little better, outperforming three of the years. U.S. mid cap stocks have had a very dismal run, with 2014 the only year the index edged ahead of the S&P 500. Performance data was gathered from the Vanguard Investor website.

*MSCI US Investable Market Real Estate 25/50 (7/25/18 to 2024); MSCI US REIT Index (2014 to1/31/2018); MSCI US Investable Market Real Estate 25/50 Transition Index (2/1/2018 to 7/24/18)

S&P 500 Index dominance is easily identified in the chart below from Koyfin.com, which illustrates the cumulative performance of the S&P 500 Index versus Vanguard index funds representing the areas of investment above from December 31, 2013, through December 31, 2024. The S&P 500 Index, in red, dominates the other indices and far outpaces international stocks represented in blue. It’s safe to say that diversification has not been favored during this time period.

This has not always been the case. The chart from Koyfin.com below shows the exact same exchange traded funds and S&P 500 Index for the ten years prior to December 31, 2013. The second chart is from December 31, 2003 through December 31, 2013. The S&P 500 significantly lagged the other market areas during this time period. A diversified portfolio dominated during this time.
The dominance of the S&P 500 index over the past 10 years can be illustrated with the amazing performance of the “Magnificent 7” stocks that currently dominate the S&P 500 index. The top 10 stocks in the S&P 500 currently represent 38.7% of the index market capitalization, while the other 490 companies make up the other 61.3% of the index. It is safe to say the big keep getting bigger. These stocks currently sell for a forward price to earnings ratio of 29.8x, well ahead of their average from 1996-present of 20.6x. These stocks continue to generate very strong earnings growth and profit margins. However, there will come a time when growth slows and/or prices become unsustainably high. When that time is may be hard to say. This type of environment can last a very long time.
While we contemplate the thought of how much longer this can last, I’ll let you ponder on these statistics for the “Magnificent 7” stocks. While an investment in the S&P 500 would have been solid the past 11 years, the cumulative return for these companies since December 31, 2013 through December 31, 2024 is extremely large. Not all of these companies have been included in the S&P 500 Index the past 10 years. However, it does help paint the picture for how much growth these companies have seen.

companies have seen.

Cumulative price return since December 31, 2013 (Koyfin.com)
Nvidia Corporation35,449.41%
Tesla, Inc.3,926.88%
Apple Inc.1,332.60%
Microsoft Corporation1,248.04%
Amazon.com, Inc.975.49%
Meta Platforms, Inc.975.49%
Alphabet Inc.586.35%
S&P 500 Index218.21%