Taking stock of the S&P 500 Index

Why the U.S. market may not be as overvalued as the CAPE suggests.

Michael Rawson, CFA 14 January, 2014 | 7:00PM

The Dow Jones Industrial Average may be older and more widely cited, but the S&P 500 Index's market-cap weighting makes it closer to the ideal "market portfolio" envisioned in the efficient-market hypothesis.

An S&P 500 Index fund can serve as an effective building block for exposure to United States equities. The index contains 500 of the largest publicly listed U.S. companies. And for the most part, it has lived up to the expectations of the efficient-market hypothesis, proving to be extremely difficult for active managers to beat consistently after fees.

The market isn't cheap, but perhaps not as rich as CAPE crusaders suggest

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About Author

Michael Rawson, CFA

Michael Rawson, CFA  Michael Rawson, CFA, is an analyst covering equity strategies on Morningstar’s manager research team.