Skip to main content

Sound Advice: July 1, 2020


Most Stocks Are Not Doing As Well As The Averages
It’s been a fascinating six months for the equity markets, especially considering how things changed when the market hit bottom on March 23rd.  Until that date, stocks such as Alphabet (a.k.a., Google) and Facebook were going nowhere fast.  Then the pandemic forced us to give up lives of flexibility and personal contact and shift to virtual life in the digital world.  Amazon, Facebook, and Netflix rose on a tidal wave of use.
It seems likely these beneficiaries will continue to prosper until the options we used to have are available again.  Their success, however, is not widely shared.
This is well illustrated by the comparison between the performance of the Standard & Poor’s 500 Index, which is capitalization-weighted, and the S&P 500 Index when measured on an equal-weighted basis.
Let me explain the difference.  The index as stated includes companies of all sizes.  Some are huge; others are tiny.  When the shares of the biggest companies rise or fall, the impact on the index could be 100 times or more than the price movement of the smallest companies.
Think of a circus with 500 animals, including elephants and monkeys.  Which do you think would carry the most weight?  It’s the same with the S&P 500 Index.
When the index is viewed on an equal-weighted basis, the impact of each of the companies is identical, regardless of size.
The comparison between the cap-weighted and equal-weight indexes is striking.
Over the last six months (essentially year to date), the cap-weighted S&P 500 index fell by 6%.  The equal-weighted index dropped by 15%.  In other words, most stocks are way behind the market.  
What are often referred as blue chips have done even worse.  Banks such as J.P. Morgan, Bank of America, and Citi are all down by more than 30%.  And then there’s AT&T, which lost 26%.
The quarters ahead will certainly be filled with further market volatility, sparked by interim reports of employment, unemployment claims, corporate earnings, actions by the Federal Reserve, campaigns for the upcoming presidential election, as well as progress in the battle against the COVID virus.  More likely than not, prices will bounce around through a broad, extended trading range while we wait for good news about therapeutics and vaccines.
Although we continue to deal with a bombardment of doom and gloom, the passing of each day gets us closer to the medical breakthroughs needed.

N. Russell Wayne, CFP®
www.soundasset.com
www.soundasset.blogspot.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: September 19, 2026

Is AI good news or bad news for investments? AI is potentially very good news for investors—but not automatically good news for every investment . The key distinction is between AI as an economic technology and AI stocks at today's prices . As of September 2026, there are compelling reasons for both optimism and caution: The bullish case: AI spending remains enormous. Gartner estimates global AI spending at $2.7 trillion in 2026 , up 49.5% year over year. If AI produces sustained productivity gains, corporate profits could expand well beyond the companies currently selling AI hardware. The valuation case: Investors have already priced in a lot of success. Valuations of major AI companies are elevated and expected long-term earnings growth is well above historical norms. The spending-risk case: The five largest hyperscalers are expected to spend more than $1 trillion on AI-related capital expendit...
Post a Comment
Read more

Sound Advice: September 30, 2026

Now what? For many women, there comes a time when financial confusion reigns.   It may come after a spouse passes or a marriage goes off the rails.   It’s the same situation for women who never married. The questions are many.   The answers may be few.   Toward the top of the list of concerns is the issue of understanding.   Although there are always complex matters, it’s essential that all of the elements are clearly presented in a straightforward fashion.   There’s more.   Presentation is one thing, but comprehension is another. If there’s a question, it must be asked.   Clarity is the key.   Don’t just say I get it when you don’t.   And, it’s essential to grasp how each of the items fits in the overall situation. In the absence of understanding, no decisions will be made. Here are some of the most pressing questions? What’s the smart way to handle my investments? Where should I go for advice? A bank, stockbroker, attor...
Post a Comment
Read more

Sound Advice: October 14, 2026

Why your adviser must be a fiduciary   You should insist that your financial adviser be a fiduciary because a fiduciary is legally obligated, when acting in a fiduciary capacity, to put your interests ahead of their own and manage conflicts of interest appropriately. Key reasons: Your interests come first. A fiduciary duty requires the adviser to act in your best interest rather than simply recommending something that is suitable or profitable for them. Fewer conflicts of interest. Some advisers can receive commissions, bonuses, or other compensation for recommending particular investments or insurance products. A fiduciary must address material conflicts rather than allowing them to drive the recommendation. Greater transparency. Fiduciary advisers generally have obligations concerning disclosure, fees, conflicts, and how they are compensated. That makes it easier for you to understand what you're actually paying. Better alignment over the long term. A good adviser sh...
Post a Comment
Read more