Performance of the Average Stock

There are many different indexes used to measure the performance of stocks. Some of the most popular include the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite. These are all considered to be measures of large U.S. stocks. There are then other indexes to measure the performance of small U.S. stocks, international stocks, various sectors such as technology and healthcare, and more. These different stock indexes consist of different stocks, may be calculated differently, and could be intended to measure different things.

The S&P 500, as mentioned above, is a measure of large U.S. stocks performance, includes 500 stocks, and is the most widely used by investors to gauge the stock market’s performance. The S&P 500 is a cap-weighted index meaning that the bigger a stocks total value, or market capitalization, the more impact the stock has on the performance of the index. This method of calculation is common and certainly has merit but can sometimes not tell the entire story of the market including in 2020.

Source: www.YCharts.com

As the above graph shows, the S&P 500 (cap-weighted) index, the one we see reported everywhere including in this blog every week, is down just -0.4% year-to-date although the average of these 500 stocks is down -11.4%. In other words, if you had $1 invested in each of the 500 stocks in the S&P 500, your portfolio would be down -11.4% even though the S&P 500 index is down only -0.4%. This is because the larger stocks in the S&P 500, those with a larger market cap and therefore having larger impact on the index’s performance, have performed better than the small stocks in the index.

Although large stocks have performed better than small stocks in 2020, and have for the past 2 ½ years, this is not necessarily normal. Depending on the research cited, small stocks have tended to outperform large stocks arguably because they have more risk (more risk tends to result in more return).

All of this serves as a reminder that any one index never tells the entire story of the markets and that what has happened recently, such as large stocks outperforming small, has not always been the case and likely will not continue indefinitely.

This Week’s Performance Highlights

Source: www.YCharts.com

There was a significant divergence in stock prices around the world with most tending to move higher for the week. Differences in performance were seen throughout U.S. markets as well as in markets around the world. Markets not all moving in lockstep, as they sometimes do, indicate investors being more selective about what they are buying.

Economic Indicators

According to the Institute for Supply Management (ISM), the service side of the economy, employing roughly 80% of Americans, snapped back from the COVID-19 lows with the index jumping to 57.1% in June from 45.4% the month before (any reading above 50% indicates growth). This is the biggest change from month-to-month since the index was created in the ‘90s and far surpassed economists’ expectations of a reading of 51.0%. In spite of the return to growth, business activity remains far below pre-crisis levels.

Initial Jobless Claims reported by states continued to decline coming in at 1.31 million this week, down nearly 100,000 from the week before and below economists’ estimates. Continuing claims, the total number of people receiving state benefits, fell to 18.0 million from 18.8 million the week before. Unfortunately, when including claims paid through the temporary federal assistance programs continuing claims are up to 32.9 million from 31.5 million in the prior week.

The Producer Price Index (PPI), a measure of wholesale inflation, came in down -0.2% for June surprising economists who had predicted a rise of +0.4%. This June decline falls a rise in May of +0.4%. Slowing demand in retail and other parts of the economy are blamed for these falling prices.

Upcoming Economic Reports