If Nearly Half of S&P 500 Stocks Are Up in 2025, Then Why Is the Index Down 5%?

The S&P 500 (^GSPC 0.86%) is one of the most closely watched stock market indexes. Often viewed as a barometer for the broader market, the S&P 500 consists of the 500 largest companies in the U.S., providing a benchmark for measuring a portfolio's performance.

Year to date (YTD), the S&P 500 is down 5.1% as of market close on March 28, but 218 of its components are up on the year.

Here's what's driving the index lower, some of the pros and cons of using it as a benchmark, and what the broader market moves mean for your portfolio.

Image source: Getty Images.

Understanding the S&P 500's top-heavy nature

The S&P is weighted by market cap, meaning some companies affect the index far more than others. For example, Nvidia (NVDA 0.95%) and Intel (INTC 9.67%) are both well-known chip companies, but Nvidia has a market cap of $2.68 trillion compared to Intel's $99 billion. This means that if Intel gained 27% or so and Nvidia gained 1%, those moves would affect the S&P by the same amount.

Large growth-focused companies have crushed the index in recent years. They have grown so much in value that the 10 largest companies in the S&P make up over a third of the index.

Here's a look at those 10 companies, their current weightings, YTD performance, and the estimated effect on the index so far this year based on the current weighting.

Data source: Slickcharts. Data as of market close March 28.

Adding up the impact of these 10 stocks, we get a 3.97% negative effect on the index. Meaning if you take out the performance of the top 10 names, the S&P would be down around just 1% YTD.

The sell-off hasn't spread to every sector

Understanding this top-heavy nature sheds light on what drives the index. The S&P 500 is representative of the stock market, but it can be bit misleading. At face value, it seems the market is down when most stocks are doing just fine. But look closer, and you'll find the majority of sectors are up on the year.

^IXE data by YCharts.

Many large stocks are actually doing well. But big sell-offs in heavily weighted sectors, like technology and consumer discretionary, are dragging down the index.

Using the S&P 500 to your advantage

The S&P 500 provides a good reading on the value of the U.S. stock market. However, it doesn't do a good job of measuring if the majority of large-cap stocks are doing well because the index is market cap weighted, not equal weighted.

It can also be a mistake to overly compare your portfolio's performance to the S&P. If you have little or no exposure to the largest megacap growth companies, your performance will probably vary wildly from the S&P 500. Whereas if you're heavily invested in growth stocks and growth-focused industries, your portfolio may be more volatile than the S&P 500.

Knowing what makes up the index can help you filter out information. In this case, the stock market sell-off is somewhat isolated among megacap names. Even traditionally cyclical sectors, like materials and energy, are up on the year. So, we are not in a broader sell-off, just a tech-led one.

Investors are getting the chance to buy top tech stocks at lower valuations. Now may be a good time to conduct a portfolio check and update your watch list to determine which stocks may be the best fit for you. Companies like Broadcom offer a balance of growth, income, and value, while a company like Nvidia is valued-based on its earnings potential.

If you have a high risk tolerance and a long-term time horizon, buying shares in former market leaders that have sold off could be a solid choice.