I’m starting to have a repetitive dialogue in my client meetings and thought I would share some insight. The comments vary but the theme is the same:
“I can’t believe the market has come back this rapidly and we’re positive for the year. Is this too good to be true?”
I think there are a few easy explanations that will offer some perspective once we look under the hood. First, if you are measuring the “markets” by the Standard & Poor 500 index, you need to understand how it is constructed. It is the 506 largest U.S. companies (yes, there are 506 stocks in the 500 index) and that is based solely on market capitalization, not sales, assets, employees, revenue, profit, or any other measurement. Market capitalization is simply the total value of all a company’s stock shares. In other words, only stock value matters when it comes to S&P500 index.
As of August 11th, Apple is the largest company in the U.S. based on market capitalization, so it has the highest weighting in the S&P 500 index. If you take the total stock value of all 506 companies in the index, you can then find out what percentage each company represents. In this example, Apple represents 6.44% of the index.
At the end of 2019, AT&T had $551.67 Billion in assets, 63% more than Apple’s $338.52 Billion. Walmart had $523.96 Billion in revenue, 201% more than Apple at $260.17 Billion. But by market capitalization, AT&T represents 0.78% and Walmart represents 0.67%, far less than Apple.
So, what’s driving the market in 2020? Based on 8/12/2020 closing prices, the top 5 stocks in the S&P500 index and their weights are Apple (6.44%), Microsoft (5.58%), Amazon (4.67%), Alphabet (aka Google) (3.18%), and Facebook (2.23%). These 5 stocks represent 22.1% of the S&P500 index, therefore their stock performance represents 22.1% of what the index is doing. In this case, the worst performer in that group YTD is Google at 12.68% and the best is Amazon at 71.13%. The index is up 5.9% and these 5 stocks have added 9.7% positive performance to the index. Conversely, the other 501 stocks in the index have collectively detracted -3.8% in performance.
If you did not own those 5 stocks YTD, such as most dividend focused investors, you are likely negative for the year. If you are a diversified investor and have bonds in your portfolio, that is also a different story, as bonds have rallied this year and boosted portfolio performance.
Here are some other interesting statistics for the year when you look at sector performance:
Sector | YTD | 1 Year |
Information Technology | 24.30% | 45.66% |
Consumer Discretionary | 20.39% | 27.27% |
Communication Services | 8.10% | 18.33% |
Health Care | 5.03% | 18.05% |
Materials | 2.02% | 8.85% |
Consumer Staples | 1.74% | 8.07% |
Industrials | -4.60% | 3.39% |
Utilities | -5.71% | 0.43% |
Real Estate | -6.51% | -5.67% |
Financials | -18.09% | -6.90% |
Energy | -36.45% | -33.46% |
Avelo Airlines To Establish Base At ILM, Add Three Nonstop Destinations
Cece Nunn
-
Dec 4, 2024
|
|
Local Ice Cream Shop Earns National Honors
Staff Reports
-
Dec 3, 2024
|
|
Wilmington-area Residents Appointed To State Panels
Staff Reports
-
Dec 3, 2024
|
|
A First Look At A Planned Aquatic Center And Recreation Village
Staff Reports
-
Dec 5, 2024
|
|
Local Leaders Talk Ongoing, Future Projects At Power Breakfast
Emma Dill
-
Dec 4, 2024
|
While at events, Carter Jewell realized something was missing: an alcohol-free option that wasn’t just water or soft drinks. Something that...
When officials rolled out Hive MLS, a rebranded version of the former N.C. Regional Multiple Listing Service, they said Hive comes with new...
The idea for the Beach Mule, an electric beach cart, came to company owner and founder Will Parker while on the Bald Head Island ferry....
The 2024 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.