Most widely-used stock indices you see, including the S&P 500, are weighted by market capitalization rather than weighted equally, giving the larger stocks in the index more sway over the index’s movement. The 10 largest stocks by capitalization in the S&P 500, for instance, have the same weighting as 89 equally weighted stocks.
Because market-cap weighted indexes are heavily biased by the largest constituents, these indexes typically publish a less followed but insightful Equal Weight Index (EWI) that weighs each stock equally across the index. Apple makes up 2.9% of the S&P 500 Index but just 0.2% in the S&P 500 EWI.
By removing the extra influence large-caps have in the standard index, we are able to pick up on trends by comparing the performance of both the market-cap and the EWI version to see how smaller-cap constituents are performing relative to their larger peers.
The recent returns of the S&P 500 indices show signs of size movement. The large-cap S&P 500 is no longer outperforming the small-cap S&P 600 as it did in the prior 1-year period. Mid-caps, as seen by the S&P 400, are now returning more than both small and large caps. And, interestingly, within each index, the EWI version outperformed the cap-weighted index indicating, at least in 2016, small-caps have taken the momentum from large-cap stocks.