It’s Time You Learn a Little About the Little-Known Equal-Weighted S&P 500

Hello trader, Look under the hood of the broader stock market right now and you'll see a picture that looks nothing like the major indices that are so often quoted by the financial media. Sure, you've probably heard about the historic underperformance being delivered by small caps in recent weeks. But have you heard about the battle between cap-weighted and equal-weighted indexes that's also taking place? Cap-weighted indexes like the Nasdaq Composite Index, the Dow Jones Industrial Average, and Standard and Poor's 500 Index are calculated by using a company's market price and the number of outstanding shares to determine the percentage weighting of the company's inclusion in the index.

Quite simply, the larger the company, the larger that company will be weighted in the portfolio. In contrast, equal-weighted indexes are constructed by distributing the same investment amount into each company stock in the same pro-rata amount. In other words, no matter the company's size, each company is represented equally within the index. I'm about to show you the pros and cons to using each strategy as either a trading vehicle (via ETFs, for example) or as a tool for analyzing the markets, and I am going to reveal what each strategy is telling us about the market right now. Click here to continue reading...

Jeff Bishop

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