7 ms·

S&P 500 Return Attribution: Its 1% economy

66 points by Ballu 6y ago

TekMol 6y ago
I would prefer to see this comparison (top 1% vs the rest) for the NASDAQ. To me it seems kind of normal, that tech is eating the world and is more volatile. So FAAMG making the rest of the S&P 500 look stuck in comparison is no surprise. But does the same hold true if we compare FAAMG to the rest of the tech market? How about the rest of the software market? If so, that would be alarming.
pmiller2 6y ago
What's with the editorialized title? The actual title is "S&P 500 Return Attribution," and the phrase "1% economy" appears nowhere in it.
- metal13 6y ago
  It's not editorialized. "Those 5 stocks are up 37% on average while the S&P 500 is up 2%, and the remaining 495 stocks are down 5%." 5/500 = 1%.
  - icedchai 6y ago
    The title is different from the title on the article, so it is editorialized.
    - Ballu 6y ago
      It can be mine mistake, is it not allowed?
      - pmiller2 6y ago
        Generally not. The guidelines say you should submit the actual title, unless the title is clickbait, uninformative, otherwise misleading, or longer than the character limit.
        Ballu 6y ago
        Thanks. Should not have added my text.
  - baking 6y ago
    It's market cap weighted, so they make up more than 1% of the index. Just based on the numbers shown (+2%, -5%, and +37%) they must represent about 17% of the S&P 500.
  - usace 6y ago
    So those 500 stocks are now the "economy?" Its a very misleading title.
cj 6y ago
The Russell 3000 is also up YTD, but is also cap-weighted and therefore I suspect most returns are from the mega corps. Many people (politicians?) like to point to the S&P 500 when talking about stock market growth. What is a better index or metric that captures the overall health / growth of the economy?
- tempsy 6y ago
  none of them? stocks have never been more detached from the underlying economy than now - i mean look at the total market cap of US stocks to GDP - it’s something like 170%
  - throw0101a 6y ago
    > stocks have never been more detached from the underlying economy than now Economic indicators (CPI, GDP, unemployment) are backwards looking, while stocks are generally forward looking. The S&P 500 peaked around mid-February and then started tanking. Meanwhile, in early March: > On March 2, New York City Mayor Bill de Blasio tweeted that people should ignore the virus and "go on with your lives + get out on the town despite coronavirus."[73][74] At a news conference on March 3, New York City Commissioner of Health Oxiris Barbot said "we are encouraging New Yorkers to go about their everyday lives."[75] * https://en.wikipedia.org/wiki/COVID-19_pandemic_in_New_York_(state)#March https://en.wikipedia.org/wiki/COVID-19_pandemic_in_New_York_... Cuomo then declared a state of emergency on March 7—at least two weeks after stocks started 'acting'. The stock market (as 'an entity') dislikes unexpected news: as new information ripples out, the Efficient Market Hypothesis purports that will effect prices. So if a company says a quarter or two will be good, and it turns out bad, their stock price will effected by that new information. But if everyone already knows that things will be bad, when the bad news is announced there won't be much of a reaction. You can have bad news as long it's expected: the pandemic was unexpected and so everyone had to re-organize their strategies. That was February to March. Now that the pandemic is more of a know quantity, and its effects of society are more well-known, people can focus on how companies will deal with it: it's generally bad for cruise lines and airlines (stocks down), it's generally good for companies that help with work/shelter-in-place stuff like Zoom/telcomm and cloud (stocks up). What was April onwards. Yes, the economy does suck. But stocks are about forward looking expectations, not about the now or past.
chromaton 6y ago
Is there an S&P 5 index fund or ETF?
- throw0101a 6y ago
  S&P 100, Russell 50/200: * https://en.wikipedia.org/wiki/S%26P_100 https://en.wikipedia.org/wiki/S%26P_100 * https://en.wikipedia.org/wiki/IShares_S%26P_100 https://en.wikipedia.org/wiki/IShares_S%26P_100 * https://en.wikipedia.org/wiki/Russell_Top_50_Index https://en.wikipedia.org/wiki/Russell_Top_50_Index * https://en.wikipedia.org/wiki/Russell_Top_200_Index https://en.wikipedia.org/wiki/Russell_Top_200_Index See also global: * https://en.wikipedia.org/wiki/S%26P_Global_100 https://en.wikipedia.org/wiki/S%26P_Global_100 Given that the most popular high-flyers are tech companies, you can go with the NASDAQ perhaps: * https://en.wikipedia.org/wiki/NASDAQ-100 https://en.wikipedia.org/wiki/NASDAQ-100 Though generally speaking, diversification generally gets better results: * https://www.pwlcapital.com/should-you-invest-in-the-sp-500-index/ https://www.pwlcapital.com/should-you-invest-in-the-sp-500-i... And don't forget some bonds, so when the inevitable dips occurs (e.g., March), you have something you can liquidate to rebalance: * https://www.forbes.com/sites/investor/2010/12/17/the-lost-decade-was-a-golden-age-if-you-rebalanced/#a5136faab5d5 https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...
- leetcrew 6y ago
  if you're only dealing with five stocks, why not just rebalance your holdings yourself every month or so? plenty of zero-commission options these days.
  - zeckalpha 6y ago
    No need to rebalance if it is market cap weighted
    - shoo 6y ago
      You need to rebalance if the stocks included in your top 5 index change, i.e. if some new stock displaces one of your original 5. Otherwise you've got a fund of 5 stocks chosen by some metric on historical date blah -- which may be a reasonable idea but doesn't seem to align with the spirit of "S&P 5".
defertoreptar 6y ago
How does this compare to pre-covid S&P 495?
throw0101a 6y ago
It should be remembered that the S&P 500 is market cap weighted, and so will always be concentrated. This is nothing new: * https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty/ https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty... * https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and-the-old-normal/ https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and... * https://en.wikipedia.org/wiki/Nifty_Fifty https://en.wikipedia.org/wiki/Nifty_Fifty And while the article isn't wrong, it may not show the whole story: > While the S&P 500 is up a 3% or so this year, there are 142 stocks (as of yesterday’s close) in the S&P 500 that are up at least 10% or more. On the other hand, there are 220 stocks down 10% or more this year. * https://awealthofcommonsense.com/2020/08/concentrated-in-the-stock-market/ https://awealthofcommonsense.com/2020/08/concentrated-in-the... When the above article was posted (8/4), the top ten YTD percentage risers were, largest first: Carrier Global, DexCom, NVIDIA, West Pharma, PayPal, Abiomed, Regeneron Pharma, AMD, Amazon, Cadence Design Systems. Was anyone surprised that Clorox (53.7%) rose more than Apple (49.1%)? The S&P 500 being concentrated is the same as it always was over the decades: * https://etfdb.com/history-of-the-s-and-p-500/ https://etfdb.com/history-of-the-s-and-p-500/ * https://www.qad.com/blog/2019/10/sp-500-companies-over-time https://www.qad.com/blog/2019/10/sp-500-companies-over-time * https://ritholtz.com/2013/02/visual-history-of-the-sp-500/ https://ritholtz.com/2013/02/visual-history-of-the-sp-500/ AT&T was in the top ten for seventy years. Absolutely no one was excited about the S&P 500 during the "Lost Decade" of 2000-2009, but now people are probably too excited. Everyone is freaking up about the un-reality of the stock market: let's see how things go for the next ten years and decide then.
hankchinaski 6y ago
i would be interested to see how the return distribution varies (if it does at all) over the medium/long term 5yrs+ - i bet it does varies - and that’s the whole point of the index - it’s not news that some stocks do better in the short terms than others. the real question is which ones are good in the long run... so i think this article is rather pointless in its essence
- throw0101a 6y ago
  > i would be interested to see how the return distribution varies (if it does at all) over the medium/long term 5yrs+ As the P/E goes up, the expected return goes down; see Schiller / CAPE: https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-earnings_ratio https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-e... This has happened to popular companies before: * https://en.wikipedia.org/wiki/Nifty_Fifty https://en.wikipedia.org/wiki/Nifty_Fifty
pdog 6y ago
Stock market returns have always been about a small handful of big winners. It's one of the reasons why indexing usually outperforms stock picking. The median stock actually performs worse than short-term treasury bills. In other words, cash is a better investment than most companies.
- cheez 6y ago
  If only more people understood this. That being said, if your biggest and best stocks aren't going up, neither will your index. The question is whether inflated PEs are here to stay.
  - controversy 6y ago
    They are until the fed can no longer print money through various ways.
    - cheez 6y ago
      There is no country on earth that is immune from willy nilly central bank printing right now. So everyone is in the same boat. Now... If someone figures out how to stop the central bank printing and keep things going, that will be a problem for USD.
- marta_morena_25 6y ago
  Yeah, except that when you pick a company to invest in you are not just picking randomly. Just because most companies perform poorly, says nothing about the ability to single out high performing companies. This advise is completely flawed. Of course if you don't want to spend time on picking the right companies to invest in, an index will likely be a better and safer choice. But with an index, your gains will always be excessively capped. It's trading gains for effort spend. Not even risk. If there is a crash, indices will go down as well. By picking your companies wisely, you can run circles around any index.
  - pavlov 6y ago
alexpetralia 6y ago
I would love to see a return distribution, not by day, but rather by stock, to see to what extent the distribution is right tailed. I suppose the answer is very.
IanDrake 6y ago
Stay away from following anything that looks like advice in these comments. I'm frankly shocked at some people's opinions on investing here. I meet so many investors who think they are geniuses because the portfolio they constructed did so well. One of the best lessons I've heard about risk is that you don't judge a decision by the outcome, but by the risk being taken when the decision is made. For example, go to a casino and put your life savings on 10. If you win, did you make a good decision? No. That's what people who pick stocks are doing. Just massive amounts of hindsight bias and survivorship bias.
hammock 6y ago
>There are a handful of stocks doing the heavy lifting and driving YTD returns in the S&P 500 index. This is interesting, and this analysis is done for 2020 returns only. Were the same analysis be done for any other year, like 1995 or 1985 or 1975, we might find a similar dynamic. Which might make the insight here less interesting.

66 points by Ballu 6y ago

I would prefer to see this comparison (top 1% vs the rest) for the NASDAQ. To me it seems kind of normal, that tech is eating the world and is more volatile. So FAAMG making the rest of the S&P 500 look stuck in comparison is no surprise. But does the same hold true if we compare FAAMG to the rest of the tech market? How about the rest of the software market? If so, that would be alarming.

pmiller2 6y ago

What's with the editorialized title? The actual title is "S&P 500 Return Attribution," and the phrase "1% economy" appears nowhere in it.

metal13 6y ago
It's not editorialized. "Those 5 stocks are up 37% on average while the S&P 500 is up 2%, and the remaining 495 stocks are down 5%." 5/500 = 1%.
- icedchai 6y ago
  The title is different from the title on the article, so it is editorialized.
  - Ballu 6y ago
    It can be mine mistake, is it not allowed?
    - pmiller2 6y ago
      Generally not. The guidelines say you should submit the actual title, unless the title is clickbait, uninformative, otherwise misleading, or longer than the character limit.
      - Ballu 6y ago
        Thanks. Should not have added my text.
- baking 6y ago
  It's market cap weighted, so they make up more than 1% of the index. Just based on the numbers shown (+2%, -5%, and +37%) they must represent about 17% of the S&P 500.
- usace 6y ago
  So those 500 stocks are now the "economy?" Its a very misleading title.

cj 6y ago

The Russell 3000 is also up YTD, but is also cap-weighted and therefore I suspect most returns are from the mega corps. Many people (politicians?) like to point to the S&P 500 when talking about stock market growth. What is a better index or metric that captures the overall health / growth of the economy?

tempsy 6y ago
none of them? stocks have never been more detached from the underlying economy than now - i mean look at the total market cap of US stocks to GDP - it’s something like 170%
- throw0101a 6y ago
  > stocks have never been more detached from the underlying economy than now Economic indicators (CPI, GDP, unemployment) are backwards looking, while stocks are generally forward looking. The S&P 500 peaked around mid-February and then started tanking. Meanwhile, in early March: > On March 2, New York City Mayor Bill de Blasio tweeted that people should ignore the virus and "go on with your lives + get out on the town despite coronavirus."[73][74] At a news conference on March 3, New York City Commissioner of Health Oxiris Barbot said "we are encouraging New Yorkers to go about their everyday lives."[75] * https://en.wikipedia.org/wiki/COVID-19_pandemic_in_New_York_(state)#March https://en.wikipedia.org/wiki/COVID-19_pandemic_in_New_York_... Cuomo then declared a state of emergency on March 7—at least two weeks after stocks started 'acting'. The stock market (as 'an entity') dislikes unexpected news: as new information ripples out, the Efficient Market Hypothesis purports that will effect prices. So if a company says a quarter or two will be good, and it turns out bad, their stock price will effected by that new information. But if everyone already knows that things will be bad, when the bad news is announced there won't be much of a reaction. You can have bad news as long it's expected: the pandemic was unexpected and so everyone had to re-organize their strategies. That was February to March. Now that the pandemic is more of a know quantity, and its effects of society are more well-known, people can focus on how companies will deal with it: it's generally bad for cruise lines and airlines (stocks down), it's generally good for companies that help with work/shelter-in-place stuff like Zoom/telcomm and cloud (stocks up). What was April onwards. Yes, the economy does suck. But stocks are about forward looking expectations, not about the now or past.

chromaton 6y ago

Is there an S&P 5 index fund or ETF?

throw0101a 6y ago
S&P 100, Russell 50/200: * https://en.wikipedia.org/wiki/S%26P_100 https://en.wikipedia.org/wiki/S%26P_100 * https://en.wikipedia.org/wiki/IShares_S%26P_100 https://en.wikipedia.org/wiki/IShares_S%26P_100 * https://en.wikipedia.org/wiki/Russell_Top_50_Index https://en.wikipedia.org/wiki/Russell_Top_50_Index * https://en.wikipedia.org/wiki/Russell_Top_200_Index https://en.wikipedia.org/wiki/Russell_Top_200_Index See also global: * https://en.wikipedia.org/wiki/S%26P_Global_100 https://en.wikipedia.org/wiki/S%26P_Global_100 Given that the most popular high-flyers are tech companies, you can go with the NASDAQ perhaps: * https://en.wikipedia.org/wiki/NASDAQ-100 https://en.wikipedia.org/wiki/NASDAQ-100 Though generally speaking, diversification generally gets better results: * https://www.pwlcapital.com/should-you-invest-in-the-sp-500-index/ https://www.pwlcapital.com/should-you-invest-in-the-sp-500-i... And don't forget some bonds, so when the inevitable dips occurs (e.g., March), you have something you can liquidate to rebalance: * https://www.forbes.com/sites/investor/2010/12/17/the-lost-decade-was-a-golden-age-if-you-rebalanced/#a5136faab5d5 https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...
leetcrew 6y ago
if you're only dealing with five stocks, why not just rebalance your holdings yourself every month or so? plenty of zero-commission options these days.
- zeckalpha 6y ago
  No need to rebalance if it is market cap weighted
  - shoo 6y ago
    You need to rebalance if the stocks included in your top 5 index change, i.e. if some new stock displaces one of your original 5. Otherwise you've got a fund of 5 stocks chosen by some metric on historical date blah -- which may be a reasonable idea but doesn't seem to align with the spirit of "S&P 5".

defertoreptar 6y ago

How does this compare to pre-covid S&P 495?

throw0101a 6y ago

It should be remembered that the S&P 500 is market cap weighted, and so will always be concentrated. This is nothing new: * https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty/ https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty... * https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and-the-old-normal/ https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and... * https://en.wikipedia.org/wiki/Nifty_Fifty https://en.wikipedia.org/wiki/Nifty_Fifty And while the article isn't wrong, it may not show the whole story: > While the S&P 500 is up a 3% or so this year, there are 142 stocks (as of yesterday’s close) in the S&P 500 that are up at least 10% or more. On the other hand, there are 220 stocks down 10% or more this year. * https://awealthofcommonsense.com/2020/08/concentrated-in-the-stock-market/ https://awealthofcommonsense.com/2020/08/concentrated-in-the... When the above article was posted (8/4), the top ten YTD percentage risers were, largest first: Carrier Global, DexCom, NVIDIA, West Pharma, PayPal, Abiomed, Regeneron Pharma, AMD, Amazon, Cadence Design Systems. Was anyone surprised that Clorox (53.7%) rose more than Apple (49.1%)? The S&P 500 being concentrated is the same as it always was over the decades: * https://etfdb.com/history-of-the-s-and-p-500/ https://etfdb.com/history-of-the-s-and-p-500/ * https://www.qad.com/blog/2019/10/sp-500-companies-over-time https://www.qad.com/blog/2019/10/sp-500-companies-over-time * https://ritholtz.com/2013/02/visual-history-of-the-sp-500/ https://ritholtz.com/2013/02/visual-history-of-the-sp-500/ AT&T was in the top ten for seventy years. Absolutely no one was excited about the S&P 500 during the "Lost Decade" of 2000-2009, but now people are probably too excited. Everyone is freaking up about the un-reality of the stock market: let's see how things go for the next ten years and decide then.

hankchinaski 6y ago

i would be interested to see how the return distribution varies (if it does at all) over the medium/long term 5yrs+ - i bet it does varies - and that’s the whole point of the index - it’s not news that some stocks do better in the short terms than others. the real question is which ones are good in the long run... so i think this article is rather pointless in its essence

throw0101a 6y ago
> i would be interested to see how the return distribution varies (if it does at all) over the medium/long term 5yrs+ As the P/E goes up, the expected return goes down; see Schiller / CAPE: https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-earnings_ratio https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-e... This has happened to popular companies before: * https://en.wikipedia.org/wiki/Nifty_Fifty https://en.wikipedia.org/wiki/Nifty_Fifty

pdog 6y ago

Stock market returns have always been about a small handful of big winners. It's one of the reasons why indexing usually outperforms stock picking. The median stock actually performs worse than short-term treasury bills. In other words, cash is a better investment than most companies.

cheez 6y ago
If only more people understood this. That being said, if your biggest and best stocks aren't going up, neither will your index. The question is whether inflated PEs are here to stay.
- controversy 6y ago
  They are until the fed can no longer print money through various ways.
  - cheez 6y ago
    There is no country on earth that is immune from willy nilly central bank printing right now. So everyone is in the same boat. Now... If someone figures out how to stop the central bank printing and keep things going, that will be a problem for USD.
marta_morena_25 6y ago
Yeah, except that when you pick a company to invest in you are not just picking randomly. Just because most companies perform poorly, says nothing about the ability to single out high performing companies. This advise is completely flawed. Of course if you don't want to spend time on picking the right companies to invest in, an index will likely be a better and safer choice. But with an index, your gains will always be excessively capped. It's trading gains for effort spend. Not even risk. If there is a crash, indices will go down as well. By picking your companies wisely, you can run circles around any index.
- pavlov 6y ago

alexpetralia 6y ago

I would love to see a return distribution, not by day, but rather by stock, to see to what extent the distribution is right tailed. I suppose the answer is very.

IanDrake 6y ago

Stay away from following anything that looks like advice in these comments. I'm frankly shocked at some people's opinions on investing here. I meet so many investors who think they are geniuses because the portfolio they constructed did so well. One of the best lessons I've heard about risk is that you don't judge a decision by the outcome, but by the risk being taken when the decision is made. For example, go to a casino and put your life savings on 10. If you win, did you make a good decision? No. That's what people who pick stocks are doing. Just massive amounts of hindsight bias and survivorship bias.

hammock 6y ago

>There are a handful of stocks doing the heavy lifting and driving YTD returns in the S&P 500 index. This is interesting, and this analysis is done for 2020 returns only. Were the same analysis be done for any other year, like 1995 or 1985 or 1975, we might find a similar dynamic. Which might make the insight here less interesting.