Is the S&P 500 Still the Best Benchmark?
For decades, the S&P 500 has reigned supreme as the go-to benchmark for U.S. equity performance. It’s the default yardstick for measuring “the market,” the foundation of countless index funds, and the answer to “how’s the market doing?” on any given day.
But as markets evolve and concentration risk grows, it’s fair to ask: Is the S&P 500 still the best benchmark for investors?
The Rise (and Rise) of Mega-Caps
Let’s start with the elephant—or rather, the seven elephants—in the room. As of early 2025, just a handful of mega-cap tech companies make up over 30% of the S&P 500. These “Magnificent Seven” have had an outsized influence on market performance, often dragging the index up or down almost single-handedly.
This kind of concentration might not be obvious at first glance. The name “S&P 500” suggests a broad, diversified slice of the U.S. economy. But, in reality, it’s not 500 companies pulling equal weight—it’s a few giants, and a long tail of smaller players.
For investors using the S&P 500 as their benchmark or portfolio proxy, this means their performance may be potentially tied to the fortunes of a few tech names more than they realize.
The Benchmark vs. the Investor
Benchmarks are supposed to help us evaluate how a portfolio is performing relative to the broader market. But what if the benchmark no longer reflects a truly balanced view of the market?
For investors seeking broad, divesified exposure across sectors and company sizes, the S&P 500 may no longer be a fit. It’s increasingly top-heavy, sector-skewed, and potentially volatile based on just a few headlines.
This opens the door for alternatives—like Stratified ETFs—that aim to rebalance that exposure across sectors and the economic landscape.
A Fresh Take on Equity Exposure
Funds like the Stratified LargeCap Index ETF (SSPY) rethink traditional market cap indexing by avoiding the automatic overweighting of the biggest companies. Instead, they assign weight across sectors and companies, aiming to offer a balanced picture of the U.S. economy.
This approach doesn’t chase trends or play favorites. It simply aims to spread risk by using a proprietary sector-weighting approach and may avoid the kind of concentration that can distort both performance and perception.
While SSPY isn’t positioned as a benchmark per se, it challenges the assumption that market-cap weighting is the “neutral” or “default” setting for investing. That idea is worth revisiting—especially for long-term investors who value diversification and resilience.
So... Is It Time for a New Benchmark?
The S&P 500 isn’t broken. It still offers a useful snapshot of the large-cap U.S. equity market. But it may no longer be the only benchmark that matters—or a fit for every investor.
As indexing matures and new weighting strategies emerge, investors have more tools than ever to align their portfolios with their goals. The key is asking the right questions—and being open to new answers.
Because sometimes, the “standard” isn’t the solution. It’s just where we started.
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