S&P500 is an index that tracks the top 500 US companies and their stock performance. Companies in the S&P500 cover various sectors (e.g. energy, information technology, financials, and so on). The chart above represents the S&P500 sectors' market cap in percentages. For example, the more the sector is worth, the bigger the percentage in the S&P500 portfolio.
Now knowing what this chart represents and how to read it, we can draw some very interesting conclusions from it.
Dotcom bubble
From this chart, you can clearly identify the dotcom bubble between 1999 and 2001. Tech companies were so overvalued that they pushed the information technology sector to the never-seen-before valuations. This resulted in the information technology sector taking almost 35% of the S&P500 portfolio and then bursting and crashing down to around 15% in 2003.
Financial crisis
A similar story can be observed in 2007 when the financial sector got extremely overvalued by being extremely profitable. How? Selling loans and MBSs (Mortage Backed Securities) and then further reselling them as CDOs (Collateralized Debt Obligations). This resulted in a massive financial bubble that burst in 2007-2009 causing a complete financial meltdown across the globe. S&P500 portfolio share from 20% dropped to 10%.
The new Dotcom bubble 2.0
Observing the information technology sector from its embarrassing crash back in 2000s we can see that it continued to grow again, and the further it grew the faster it grew. From 2013 to 2019 (at least this is where the data ends) we can clearly identify exponential growth in this sector meaning information technology companies again being valued extremely well. A quick Google search reveals the information technology sector taking about 30% of the S&P500 portfolio in 2024. Dangerously close to the previous dotcom bubble numbers. With all the hype going around Artificial Intelligence and AI-enabling companies, it seems the percentage of this sector will continue to rise. If there is anything we have learned from previous bubbles, such continued and exponential growth will burst. It is now a question of when, not if.
Interesting, thank you for sharing!