When it comes to stock performance in 2025, does size matter?
The Nasdaq Dorsey Wright team presents our "Weight of the Evidence" for 2026 linked here. This document explores the current technical pictures across the investable world, highlighting notable changes you need to be aware of ahead of what will undoubtedly be a busy 2026. Note, this document has been approved for Financial Professionals and Non-Professionals alike, so feel free to share with clients as you see fit.
You can also join our team of experts Thursday, January 8th at 1PM EST via this registration link for a live webinar discussing these topics in more detail with NDW's Senior Portfolio Manager John Lewis. Joining John will be Nasdaq's Chief Economist Phil Mackintosh and Head of Investment Insights Yanni Angelakos to provide further commentary on the current macroeconomic picture heading into 2026.
It is becoming increasingly clear that when it comes to markets, size matters. As we’ve talked about frequently, the US equity market continues to favor the largest companies leading to the S&P 500 Index to be the most concentrated it has ever been. There are of course smaller companies in the S&P 500 that did well last year, like Western Digital (WDC), which was the best performer in the S&P 500 with a return of 282% with only a 0.10% weighting in the S&P 500. While we usually focus on just a handful of names when talking about market cap and performance, there is a clear signal between size and performance when looking at all 500 stocks in the S&P 500.
In the scatter plot chart below, x-axis is the stock’s weighting in the S&P 500 and the y-axis is its 2025 return. We used a log-scale for the x-axis since it helps to normalize a handful of significant outliers, like the top ten stocks. We then put in a logarithmic line of regression (dotted red line) to see if there was any relationship between size and performance for the entire universe. With an upward slope, the line shows a positive relationship between the size of a company and market performance (the larger a company is, the more likely its performance will be better). The R-squared value for the regression line is 0.09. While this may be small compared to regression lines in other fields, it is a viable signal of a relationship between variables when it comes to financial markets.
