Stocks in the S&P and other market-cap-weighted indexes can overprice, meaning they rise above their fundamentals. Inflated index prices occur when a stock has a high weighting in an index but is overvalued. An increasing market cap doesn't necessarily indicate a company's fundamentals; rather, it signifies that the stock's value has increased in relation to the number of outstanding shares. Consequently, equal-weighted indexes have become increasingly popular, with each company's stock price swings having an equal impact on the index.

The S&P 500 (SPX) index is a widely used benchmark but has notable limitations. It represents only large-cap U.S. companies, excluding mid- and small-cap stocks, which can provide higher growth potential. This focus limits diversification across market capitalizations.

SPX is market-cap weighted, meaning larger companies heavily influence its movements. This concentration can skew performance, particularly during market imbalances or when a few giants dominate sectors like tech.

Additionally, the SPX excludes non-U.S. firms, leaving it vulnerable to domestic economic shocks. It may also fail to fully represent rapidly evolving industries, as the index undergoes periodic rebalancing rather than continuous adaptation.

Lastly, while broad, SPX doesn't reflect alternative asset classes like commodities or bonds, reducing its comprehensive utility.