Exxon Mobil Corp.'s departure from the S&P 500 index's top ten companies came as no surprise to analysts and reflects the overall poor performance of the wider energy sector in recent years, but it could also mark a buying opportunity.
"Exxon falling out of favor is a reminder that big oil is not what it used to be. The falling in ranking reflects false fears about peak demand and a world that is increasingly grasping for alternative fuels," PRICE Futures Group analyst Phil Flynn told S&P Global Market Intelligence. "We have seen this before. Just when we think oil companies are dead, it's usually time to buy."
Apart from an investor focus on sustainability, in the last ten years energy stocks have seen their share in the index dwindle in the face of capital discipline concerns and volatile energy prices. Monthly data released Aug. 30 by S&P Dow Jones Indices showed that for the first time in the history of the S&P 500 index, not a single oil and natural gas company was in the top ten.
One of the most closely watched equities benchmarks in the U.S., the S&P 500 measures the stock performance of 500 of the largest public U.S. companies that comprise about 80% of the total U.S. market capitalization. Whether a company's stock falls into the S&P 500's top ranking is based on its float-adjusted market capitalization.
The S&P Energy index — comprised solely of oil and natural gas companies — is itself trending near historic lows and has underperformed on a relative basis in eight of the past nine years, Raymond James analyst Pavel Molchanov said in a Sept. 3 email. "This is not an Exxon-specific issue but rather indicative of broader investor aversion to the energy sector as a whole," Molchanov said.
Energy stocks currently make up 4.4% of the broader S&P 500 index, down from 11% in 2009. In the last decade, other sectors, including technology and communications, have seen their shares in the index climb, with Visa Inc. moving into the 10th ranking while Exxon slipped to the 12th position as of Aug. 30.
"As energy becomes a smaller slice of the overall market pie, by definition it becomes less relevant for generalists, some of whom are tuning it out precisely because its weighting is so low," Raymond James analyst Marshall Adkins wrote in an Aug. 27 research note. "While energy-focused fund managers have no choice but to still spend time on the sector, their generalist peers may sideline energy altogether toward the more in-favor sectors."
From the beginning of 2009 through the end of August 2019, the S&P 500 has surged a whopping 214%, while the S&P 500 Energy Index has gained just 4.7%, according to data compiled by S&P Global Market Intelligence. During the same time frame, Exxon's share price has lost more than 16% of its value, the data shows.
In 2009, Exxon was number one on the S&P 500. Although still the largest public energy company in the world with a market capitalization of about $297 billion as of Sept. 6, Exxon's weighting in the S&P 500 has slumped from atop 5% in early 2009 to 1% as of Aug. 30, according to data from Market Intelligence.
In comparison, another U.S major, the California-based Chevron Corp, coming in at number 19 on the S&P 500 as of Aug. 30, has also seen its weighting in the S&P 500 drop in the last ten years but less precipitously than Exxon's. With a market capitalization of more than $223 billion as of Sept. 6, Chevron's weighting in the index has declined from almost 2% in 2009 to just below 1% as of Aug. 30.

S&P Dow Jones Indices and S&P Global Market Intelligence are owned by S&P Global Inc.
