‘Tis the season for stock rotations. Stock market sectors tend to fall in and out of favor with regularity, shifting price patterns more often than well-diversified indexes. Indexes, too, see rotations, especially when there are significant differences among their underlying composition of companies. And, depending on which scenario one favors for the U.S. and global economies – expanding or contracting growth — signs are that the second half of 2017 might see turbulence in how the major indexes perform relative to each other – extracting from the general trend in U.S. equities. To illustrate the differences, we compare and contrast three key indexes for U.S. stocks – the Russell 2000, S&P500®, and Nasdaq 100.
The first key difference in them is company size. Both the S&P500® and Nasdaq 100 are composed of publicly-traded companies with large market capitalization, while the Russell 2000 is designed to track small-capitalized companies. The largest companies in the Nasdaq 100 and S&P500® are mega-stocks with familiar names, such as Apple, Microsoft, Amazon, Facebook, and Alphabet, the holding company of Google, with market capitalization in the hundreds of billions of dollars.
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