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To put the last two years’ returns into perspective, the S&P 500’s average annual return over the past 10 years through Friday has been 13.2%, while the 20-year average has been 10.5% and the 30-year average has been 10.8%.

Getting back to the cap-weighting, you might be wondering how much the largest stocks in the S&P 500 contributed to the index’s return in 2024. One simple way to measure this is to weight the component stocks by their Dec. 31, 2023 market capitalizations and then apply the weightings to each stock’s total return for 2024. Then we can divide those weighted returns by the full index’s return.

Here are the 10 companies whose stocks contributed the most to the S&P 500’s total return in 2024:

The list includes seven stocks, with two common share classes of Alphabet Inc. included in the index.

Is the S&P 500 really so expensive?

The above table includes forward price-to-earnings ratios for the listed companies. These are calculated by dividing the most recent closing prices for the stocks by consensus earnings-per-share estimates among analysts polled by FactSet for the next 12 months.

The forward P/E ratio is the most commonly cited valuation metric for a stock or stock index. This chart shows the S&P 500’s weighted forward P/E, based on rolling consensus 12-month EPS estimates, over the past 10 years through Monday’s close:

The index’s forward P/E is well above its 10-year average. Then again, John Buckingham, Jason R. Clark and Christopher Quigley wrote the following in the Prudent Speculator’s “2025 Visual Guide to the Markets” on Monday: “[W]e would never throw in the towel on stocks when the valuation metric is heavily dependent on just a handful of stocks.”

So what if the components of the S&P 500 were weighted equally?

The above chart underlines the case that the cap-weighted S&P 500’s forward P/E might be overstating the case that stocks are expensive. The cap-weighted index rewards success.

The S&P 500 Equal Weighted Index is tracked by the Invesco S&P 500 Equal Weight ETF RSP. In October we looked at the performance for this and eight other Invesco exchange-traded funds that use various factors to select stocks within the S&P 500 .

A look at value

Stocks and indexes can be divided into growth and value camps, with the value names generally being mature companies that trade at lower P/E (or other valuations) than growth stocks, and often feature attractive dividend yields. So the broad stock indexes are divided into growth and value subsets.

The equal-weighted S&P 500 is more of a value index, based on its much lower P/E than that of the cap-weighted index.

Buckingham is a portfolio manager and the editor of the Prudent Speculator, which is published by Kovitz Investment Group of Chicago. Kovitz has over $27 billion in assets under management, focusing on value-oriented strategies for private and institutional clients.

Here is a comparison of returns for the cap-weighted S&P 500, the equal-weighted index, the S&P 500 Growth Index and the S&P 500 Value Index over the past 10 years:

During an interview with MarketWatch, Buckingham said: “Value investors have nothing to apologize for. The returns have been fine. But they are not as good as they would have been if we had abandoned our principals and gone after hot stocks.”

The Prudent Speculator runs several portfolios for investors. Its core portfolio is made up of 80 value stocks. The Prudent Speculator team begins with a group of about 2,800 liquid stocks of companies listed in the U.S. (including secondary listings by non-U.S. companies), scoring them by a variety of metrics to identify those that trade at relatively inexpensive price multiples to sales, earnings, free cash flow, book value or by total enterprise value to operating earnings. Stocks are also screened using quality measures, such as debt-to-equity. Companies passing the screens undergo a more detailed qualitative review of business models, competition and for cyclical companies, and the wherewithal to withstand down cycles.

The Prudent Speculator has the second-highest ranking for 30-year performance through 2024 among investment letters tracked by the Hulbert Financial Digest .

Buckingham shared this breakdown of valuations as of Dec. 31 for the core TPS portfolio and companies of the Russell 3000 Index RUA and the S&P 500, as well as those indexes’ value and growth subsets. The Russell 3000 Index is cap-weighted and designed to capture 98% of the U.S. market for publicly traded common stocks.

And here is Kovitz’s breakdown of median valuations and dividend yields for the Russell 3000 Indexes and their value and growth subsets:

13 value stocks selected from the core Prudent Speculator portfolio

Buckingham provided a “baker’s dozen” list of stocks as a sample from the main TPS portfolio of 80 stocks. These trade at low forward P/E valuations and have dividend yields that are at least twice that of the S&P 500, which has a weighted dividend yield of 1.29%, according to FactSet:

Click the tickers for more about each company.

Read: Tomi Kilgore’s guide to the wealth of information available for free on the MarketWatch quote page

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