From an analysis done by USA Today: Just 28 companies in the S&P 500 index generate 50% of all the net income. Of those, Apple and JPMorgan Chase together make 10% of the profits. Berkshire Hathaway, Wells Fargo, Gilead Sciences and Verizon round out another 10%. That’s one fifth of total profits from only six companies.
Think about that for a moment. If you believe profits drive stock market value, that means the overall returns of large scale investments such as 401k’s and pension plans have to be driven by these large cap stocks — because that’s where the profits are. Taken as a whole, there aren’t enough profits in small caps for everyone’s investments to do well. Another strong argument for market cap weighting, it seems to me.
Here’s a chart from the article: