Grasp of Equity Indices Nuances Enhances Market Insights

Key Takeaways

  • S&P 500 sector dispersion is at multi-year highs
  • The Dow is strongly outperforming the S&P 500
  • Active management outperforming YTD

What a win! With Tuesday’s victory over Iran, the U.S. Men’s National Soccer team advanced past the World Cup group stage for the first time since 2014 and will play tomorrow versus the Netherlands at 10 a.m. ET. It was an exciting game, but probably more so than it needed to be. Why? A change in tactics. To start the game, the U.S. played an aggressive attacking style – leading to scoring chances and the lone goal of the game. But in the second half, the U.S. took a different approach, playing more defensively to preserve its lead. While the U.S. won 1-0, the strategy shift was nerve-wracking as Iran had several goal chances to close the game. For a soccer enthusiast, knowing these nuances adds a level of appreciation to the game. The same can be said for investors in understanding the nuances of the equity market indices.

  • Sector Dispersion Highlights | 2022 has been a challenging and volatile year for investors. At the lows year-to-date (October 12), the S&P 500 had declined ~25%, but has since recovered modestly to being down ~14%. If the year ended today, this would mark the weakest annual performance for the S&P 500 since 2008 (14 years!). Despite this weak ‘headline’ number, there is significant dispersion beneath the surface. In fact, the best performing sector (Energy: +70%) is outperforming the worst performing sector (Communication Services: -35%) by an astounding ~105% year-to-date! This marks the largest annual sector dispersion between the best and worst performing sector since at least 1995 and is nearly three times the historical average. Additionally, it is worth pointing out that six of the 11 S&P 500 sectors are either in positive territory or down less than 10% year-to date, while some of the more heavily weighted sectors (e.g., Communication Services, Consumer Discretionary and Tech) are down over 20%. This suggests that the ‘average’ sector is doing much better than the ‘headline’ S&P 500 performance number.