The US economy has changed a lot over the past four decades, and unsurprisingly, this is reflected in its equity markets.
The above pair of charts released by Goldman Sachs last week paint a nice picture of some of these transformations. One is the dramatic rise, decline and subsequent recovery of the financial sector. In terms of both earnings and market value it was a negligible part of the S&P 500 in the 1970s (when the predecessors of many of today’s top-tier investment banks were still private partnerships), but expanded steadily until the shocks of the recent global crisis.
Another is the technology sector, which at its peak during the dotcom bubble accounted for 32% of the S&P 500’s value, despite only contributing 16% of its net income. (Notice that during the financial-services bubble, the relationship was reversed; net income was a bigger share than market cap.) Now, despite lingering concerns about another bubble, tech accounts for a more reasonable 18% of the S&P’s total market value, while contributing 19% of its total earnings.
Health care has grown in both market value and earnings, a product of the US’s notorious inflation of medical costs. Finally, the energy sector has shrunk from the levels it contributed in the late 1970s and early 80s, though it’s a fair bit bigger than it was at the turn of the millennium—a sign of the fracking boom.