The S&P 500 index reached the significant threshold of 5,000 points just moments before the close of trading on Thursday, Feb. 8, extending its run to new all-time highs. Yet with this remarkable surge in the market-cap weighted index, there are cautionary signals when comparing the index to its equal-weight counterpart.

Over the last year, the performance of the S&P 500 index, tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY), has surged by 21%.

In stark contrast, the Invesco S&P 500 Equal Weight ETF (NYSE:RSP) has only seen a 4% return in the same period, significantly trailing its cap-weighted counterpart.

The relative ratio between the two indices has reached levels not seen since September 2020. The forward price-to-earnings ratio for the cap-weighted index stands at 21, making it 24% more expensive than the valuation of the equal-weight index.

The concentration of weight in the Magnificent Seven within the S&P 500 Index plays a crucial role in explaining the stark 17-percentage-point difference in performance over the last year between the two indices.

Together, these seven stocks have soared by nearly 80% over the last year. Remarkably, these heavyweights alone have contributed 64% of the S&P 500’s returns during the same period.

S&P 500 Performance Contributions Over The Last Year

Despite their combined weight amounting to approximately 1.5% in the equal-weighted index, their overall performance contribution doesn’t even reach 1 percentage point.

As the S&P 500 index celebrates its monumental leap to the 5,000-point milestone, investors and market observers are prompted to look beyond the surface of these record-breaking numbers.

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