In business, change is inevitable, and those that fail to adapt and innovate are often doomed to failure. One of the best ways to observe this concept is by tracking changes in the S&P 500 Index. The S&P acts as a snapshot that illuminates which companies and industries are the largest in the economy at any given time.
By looking at five decades worth of changes to the component companies that make up the S&P, we are able to observe and illustrate trends and shifts in the economy. These changes can be seen on smaller yearly levels as well as bigger-picture views that look at change over decades or more.
How Industry Has Changed Over the Last 50 Years
When looking at this animated graphic displaying how the industries represented on the S&P change from year to year, a few things tend to jump out.
First, the amount of change within the Industrials industry is drastic. In 1969, 166 of the 500 companies on the index, a full 33%, were in this industry, but now, there are only 70 Industrials companies represented. While that drop is massive, the Industrials industry is still the most represented business sector on the index in all but 17 of the 50 years evaluated, and it never drops out of the top five industries at any point. In fact, recent trends in the Industrials industry indicate that more and more companies in that sector are responding to the changing business landscape around them and adapting to disruption positively, as the number of industrials companies on the S&P has grown slightly in the recent past after decades of near-constant decline.
The other significant story this graphic illustrates is the impact technology has had on the S&P 500 and the economy as a whole. In 1969, there were only 16 Information Technology companies represented on the index, the second-fewest of any industry represented. Starting in the 1980s, however, the IT industry began a steady rise up the index, exploding in the 2000s. This rise culminated in IT companies sharing the top spot as the most-common businesses on the index with Consumer Discretionary firms in 2010. At the time of publication, Information Technology had 68 companies represented on the index, representing a 425% growth since 1969, and had become firmly entrenched as one of the three largest industries powering the American economy.
A Contextual Timeline of How the S&P 500 Has Evolved
Of course, changes in the economy, especially those significant enough to be reflected in the S&P 500, do not happen in a vacuum. The circumstances of the world at large help give additional context to why certain industries might thrive or struggle at given points in time. In order to demonstrate this, we’ve put together the above timelines to provide that context to the data we collected.
Each graphic represents a 25-year period of change on the S&P 500, the first covering 1970 to 1994, and the second covering 1995 to the present. Years are listed on the center line, with the rectangles above that line representing a company that was added to the index that year and rectangles below representing those companies taken off, all being color-coded based on their industry.
Above the entire timeline, we have added data points indicating certain world events that may have had an impact on the makeup of the index. These include events such as the multi-year recession of 1973-1975, which led to the year of the most churn in S&P history (1976), to the Dot-Com Bubble and the multiple major global financial crises of 2007-2008.
This timeline can help us to better understand how and why particular industries and companies have found success or failure at different times, giving a more complete picture of the index and the economy as a whole.
A Closer Look at Yearly Changes
For those interested in looking at some of the biggest changes in a given year, we have put together the following, which list the business sectors with the most companies that were added and removed from the index each year, as well as the total number of changes in that year. We have grouped this information together by decade to help keep them organized.
The Industries that Experienced the Most Change
We also tracked change by decade, the results of which can be seen above. This approach revealed that the 2000s saw more volatility in the index than any other decade, and reiterated that the 2010s has introduced much more stability. This view also confirms the extent that Information Technology has risen in prominence since the 2000s, with over 70 companies in that sector being added to the S&P 500 in the last two decades.
How Change Impacts Lifespan and Informs the Future of the S&P 500
Volatility and change in the economy at large have an obvious impact on the success of companies on the S&P 500 Index as well as how long they remain on the index. We were able to use information from the past combined with the methodology used by others to graph out the impact change and volatility have on the “lifespan” of companies as it pertains to the S&P.
Using that same methodology and data, we were able to run calculations to predict the amount of change that can be expected in the S&P over the next decade, as well as how long the average company can expect to remain on the index. It’s anticipated that businesses will continue to evolve and more disruptive companies will make their way into the marketplace, which will result in increased volatility. Additionally, we anticipate that index lifespans of companies will continually decrease to the point that the time spent on the S&P could be over five years shorter on average in 2030 compared to 2019.
Future-proofing Your Business
By looking to the past to help inform the future of business, one thing becomes clear: companies that want to succeed need to be able to adapt to a business landscape that is changing faster than ever. At QAD, we understand the needs and desires of businesses that recognize that fact, and we have developed a number of solutions and services that can help companies reach their goals in a rapidly-shifting economy.