S&P Large Caps, Not Large Caps Anymore

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It used to be that a large cap stock was defined by S&P as having a market cap of $5 billion. Because of the market drop, they revised that to $4 billion in September and now the figure is going to $3 billion. At the current rate it could be $1 billion by the end of next year.

According to MarketWatch, "These moves reflect the move [in value] in the market," said David Blitzer, managing director and chairman of S&P’s Index Committee. "Had we left the $4 billion requirement for the S&P 500, some companies would’ve had to drop off."

Maybe they should and the S&P 500 could be become the S&P 357.

Individual investors often benefit from being in large caps. Part of their market value often derives from their cash position. A firm with $1 billion in cash on its balance sheet is more likely to have a multi-billion market cap than one with $100 million and a lot of debt. Market cap often means "safety" whether that is true or not.

Being a large cap stock has lost some of its shine. But, at some point no American company may make the new cut-off.

Douglas A. McIntyre