The Broader Stock Market Remains Unimpressive

CAMS Weekly View from the Corner – Week ending 4/17/2020

April 20, 2020

In the midst of the panic fear lows a few weeks ago we shared in a Weekly View the historically fast drop of the stock market as a whole.  Peering into the details we offered the well recognized S&P 500 Index as our focal point.

While we offered a comparison of the 2008/09 drop we did so with a more telling version of the S&P 500 Index which is known as the equal weighted index.

The traditional S&P 500, which is to say the index that is always referenced in financial media, is a weighted index.  This means the components of said index play a larger or smaller role on the index results according to the percentage weight they carry in the index construction.

While this gives a good sense of the broad stock market there is also an S&P 500 index that is equal weighted.  This means all 500 companies have the same impact on the results of the index performance.

With this, for my part, the equal weighted index gives us a truer sense of how the broader stock market is performing being all 500 companies impact the results the same.

SPY - 4.20.20
Click For Larger View:

The above chart identifies the weighted S&P 500 (black line) and the equal weighted S&P 500 (blue line) on a year-to-date returns basis for this year 2020.

As we can see and certainly expect; the two trend together directionally but the weighted index (black line) is handily outperforming the equal weighted index (blue line) by 8 ½% at this point.  For perspective, we were running around a 2% differential earlier in 2020.

What this is telling us is market participants are not that excited about the broad list of companies as it is of a smaller list of companies they can choose from out there in the stock market universe.

Historically, we know we have a healthier market backdrop (or recovery in our current period) when the broader stock market is performing (or recovering) well also.

When the broader market notably separates from the more narrow market, on a performance basis such as we have depicted above, it is a “tell” from participants on the general health of the market backdrop and recovery.

This is not to say the above informs us of imminent decline again but rather offers the general state of broad health, or lack of for the stock market’s recovery to this point.

It is these type of environments where the phrase “stock pickers market” surfaces and if this continues, I am confident you will hear that phrase bandied about as 2020 unfolds.

The phrase simply implies the broad stock market is not that great but select companies across the stock market are being selected and hence are performing.

For our part currently, we use this to inform us of the general health of the broad stock market recovery which to this point in time is unimpressive relative to the weighted index.  We will continue to monitor and share accordingly.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.