Introduction to U.S. common stocks

Introduction

As explained in our article about the U.S. stock market, there are seventeen different types of securities traded on U.S. stock exchanges, including five different types of investment funds. But the "heart" of the stock market is U.S. common stocks like Apple, Microsoft and Amazon.

In terms of size, the stock market is dominated by the 500+ common stocks of well known large American corporations like Wells Fargo, Coca Cola, GE and Home Depot. These are often called "large cap" stocks because they have a total market capitalization greater than $10 billion. The term "market capitalization" reflects the total value of a company's stock, using the current market price of the stock. So if a company has 1,000,000 shares of common stock, and those shares are trading on the stock market at a price of $10 per share, that company has a market cap of $10,000,000.

U.S. common stocks are typically categorized into one of four categories based on the size of their market capitalization. There is no set rule, but we follow a set of guidelines that are fairly common:

You can read more in our article size categories.

Here is a summary of the U.S. common stocks in our database based on these size categories:

CategoryStock CountTotal Market Cap%
Large cap526$30.76 trillion86.36%
Mid cap802$3.59 trillion10.08%
Small cap1,220$1.11 trillion3.12%
Micro cap1,427$155.57 billion0.44%
Unknown1$00.00%
Unknown5$00.00%
Total3,981$35.62 trillion100.00%

The above data should be an accurate picture of the U.S. stock market as of yesterday. Our database is updated automatically in the middle of the night by various data feeds, so our database should be complete. Note that a stock is included in the category of "unknown" when we don't yet have market cap data for a stock. This typically occurs with a stock that just went public, and our data providers haven't yet included the stock in their data feed.

Also make a mental note that the 1,328 large and mid cap stocks make up about 95% of the total market capitalization of U.S. common stocks. So a lot of large institutional investors, investment funds and a lot of stock market indexes, focus on large and mid cap stocks.

What is a common stock?

When you own shares of a common stock, you are a partial owner of a company. The term "common" references the fact that a corporation potentially can have two types of stock: preferred stock and common stock. A preferred stock is stock that has a higher claim on the company's assets upon liquidation, in preference to the claims of a common stock. Another difference between preferred and common stock is that preferred stock is often issued under terms that guarantee the preferred stockholder a dividend, even if the company does not pay a dividend to its common stockholders. This makes preferred stock a hybrid security that is somewhat akin to common stock and somewhat akin to corporate debt. You can read more in our article what is a preferred stock?

Preferred stocks are not that common. Most U.S. corporations that are publicly traded on the stock market have only common stock, as shown in this table:

CategoryHas Publicly Traded Preferred StockHas Privately Traded Preferred StockDoesn't Have Preferred StockTotal
0055
Large cap4923454526
Micro cap44871,2961,427
Mid cap6319720802
Small cap58401,1221,220
Unknown0011
Total2141693,5983,981

Real estate investment trusts or "REITs"

When we use the term "U.S. common stocks", we are grouping together three types of securities:

Here is a summary of U.S. common stocks using this breakdown:

Category2Stock CountTotal Market Cap%
Common stocks3,762$34.4 trillion96.59%
REITs178$1.17 trillion3.27%
Mortgage REITs41$49.41 billion0.14%
Total3,981$35.62 trillion100.00%

To become a REIT, a company has to make an election with the Internal Revenue Service, and meet certain requirements, including the requirement that the company must be in the business of owning or investing in real estate and/or real estate mortgages. Once a company is granted REIT status by the IRS, the company is not subject to tax at a corporate level. They are also required to distribute 90% of their taxable income to shareholders in order to avoid taxation at a corporate level, so REITs usually have a higher dividend rate than an average common stock. That is one reason why it is important to understand when a common stock is a REIT or mortgage REIT. You can read more in our article what is a REIT?

We classify REITs that buy mortgages into a separate category because mortgage REITs are significantly different businesses than a regular REIT. REITs own and manage real estate (primarily commercial real estate), and most long-term investors want to have REITs in their portfolio. Mortgage REITs, on the other hand, don't actually own real estate but instead invest in mortgages and mortgage-backed securities. Most mortgage REITs have evolved into highly leveraged companies that are somewhat akin to an investment fund, or even a bank, that borrows money at one interest rate and invests it in mortgages and mortgage-backed securities paying another interest rate. They make money if they can borrow at a lower interest rate than they earn on their mortgages and mortgage-backed securities. You can read more in our article what is a mortgage REIT?

Sector classifications

In the investing world, there is a lot of discussion and analysis of stock market "sectors" or even "sectors of the economy". Every stock is analyzed to determine what part of the economy or "sector" the business operates in. The sector classification system is important to investors because during different time periods, the different sectors of the economy and therefore the sectors of the stock market perform quite differently. For example, a grocery market chain is not going to be as affected by a recession as a seller of luxury goods. So during different phases of the economic cycle, certain sectors of the economy and therefore the stock market will perform better than others. During stock market down turns, many investors will shift their focus to "safer" sectors like the utilities sector. So a lot of effort goes into analyzing stock market performance based on sectors.

As explained in our article stock market sectors, there are three competing sector classification systems in use today. On our website, we have chosen to primarily adopt the GICS system. The GICS system was invented by two of the largest stock market index providers, MSCI and S&P. Under the GICS system, all common stocks are classified into one of 11 sectors of the economy.

Here is a summary of the U.S. common stocks in our database by GICS sector:

GICS SectorStock CountTotal Market Cap%
Information Technology515$8.78 trillion24.66%
Health Care832$4.89 trillion13.73%
Communication Services157$4.71 trillion13.22%
Consumer Discretionary429$4.15 trillion11.64%
Financials776$3.99 trillion11.21%
Industrials484$2.84 trillion7.98%
Consumer Staples143$2.41 trillion6.77%
Real Estate216$1.21 trillion3.41%
Utilities78$964.53 billion2.71%
Materials153$843.35 billion2.37%
Energy190$824.59 billion2.32%
Unknown7$406.91 million0.00%
Minerals1$113.59 million0.00%
Total3,981$35.62 trillion100.00%

Micro cap stocks

On our website, a "micro cap" stock is any stock with a market capitalization of less than $300 million. Even though there are 1,000+ micro cap stocks traded on U.S. stock exchanges, they are so small and thinly traded that most large investors and institutions pay very little attention to them. And most large investment funds (mutual funds, closed-end funds, and ETFs) also tend to ignore micro cap stocks.

Micro cap stocks are also not included in very many stock market indexes. Most stock market indexes have a cut-off, in which they say that to quality for inclusion in the index, a stock must have a minimum stock market capitalization of $X million. This cutoff value varies with every index, but is often $200 to $300 million. So this cutoff usually excludes from most indexes most micro cap stocks.

One of the most popular "small cap" indexes is the Russell 2000 Index, which includes those stocks that are ranked 1,001 to 3,000 in the list of the top 3,000 U.S. common stocks based on market capitalization. So it currently includes 300+ "micro cap" stocks, but since the Russell 2000 Index weights the stocks in the index based on market capitalization, those micro cap stocks make up 2-3% of the Russell 2000 Index.

Probably as a result of the above factors, micro cap stocks tend to underperform the rest of the stock market.


All data is a live query from our database. The wording was last updated: 12/17/2019.

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