If you glance at market headlines today, you might have a pretty positive reaction. You’ll see that the NASDAQ Compositive Index is up over 17% for the year. The S&P is basically flat, which is a great comeback from where it was a few short months ago.
But do these headlines paint an accurate picture of the overall economy? Are things really moving at a smooth and steady pace? It’s hard to say as we’re in a very interesting market. While these indices show positive numbers, the Russell 3000 is down over 5%. This index tracks 3,000 US stocks and represents the performance of an average American company.
The gains in both the NASDAQ and the S&P 500 are highly concentrated in the technology sector. A handful of well performing stocks are pushing the sector performance up over 16% year to date. Some individual companies are posting gains over 60%. These few technology stocks have such a large market cap that their return numbers are driving what we see in the overall indices.
Graph Source: Eaton Vance, Monthly Market Monitor July 2020
But what about the sectors that aren’t so prominent in the media? Small-cap and REIT indices are posting double-digit negative numbers. This year has been particularly hard on International Markets. These indices don’t receive the same media exposure, but we still need to consider them when we look at the overall marketplace.
My intention is not to sound negative on the economy or the market. I’m rather positive on many aspects of both. But we do need to pay attention to how narrow of a picture some indices and their respective headlines paint.
Bottom Line: We need to pay attention to what an index number really says (or doesn’t say) about the overall market and economy. Headlines about specific indices may not describe the whole picture. If you have questions about the performance of a certain index, please reach out to your advisor.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
Registered Representative of and securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory services offered through Carroll Financial Associates, Inc., a Registered Investment Advisor. Carroll Financial and Cetera Advisor Networks are not affiliated.In the News, Market Volatility