THE INDEXES
(April, 1999)
"Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."
Sir John Templeton
The S&P 500 is today's mania. Let's review to see why. The S&P is comprised of the 500 largest companies in the universe of almost 10,000 stocks. The S&P 500 is capitalization weighted. This means that the larger the company, the greater the impact it has on the S&P index.
Below is a chart showing
the 26 largest stocks held in the S&P. This group of 26 stocks represented
102% of this index's return. This means that the remaining 474 stocks
out of 500, or 95% of the stocks in the S&P index as a group, were
down for 1998. The percentage of the S&P 500 gain that was due to
the performance of each individual stock can be seen in detail on this
chart.
|
The
26 Largest Stocks in the S&P 500
|
|||||||||
|
Market Value |
% of Mkt Cap |
52 week % Chg Price |
Weighted %Chg |
Weighted Contrib to S&P 500 |
P/E Ratio |
Price /Book Value |
Price /Cash Flow |
Price /Sales |
|
|
MICROSOFT CORP (MSFT) |
364492.0 |
3.670% |
124.7 |
4.578 |
17.167% |
65.1 |
20.1 |
46.1 |
24.2 |
| GENERAL ELECTRIC (GE) |
335553.4
|
3.379%
|
36.3
|
1.228
|
4.605%
|
37.3
|
9.0
|
19.9
|
3.6
|
| INTEL CORP (INTC) |
205457.8
|
2.069%
|
65.4
|
1.354
|
5.076%
|
35.5
|
9.4
|
22.9
|
8.5
|
| WAL-MART STORES (WMT) |
180655.6
|
1.819%
|
104.4
|
1.899
|
7.121%
|
43.9
|
9.2
|
27.8
|
1.4
|
| MERCK & CO |
178042.7
|
1.793%
|
39.3
|
0.704
|
2.639%
|
35.3
|
14.2
|
29.9
|
6.6
|
| INTL BUSINESS MACHINES (IBM) |
176892.0
|
1.781%
|
78.2
|
1.392
|
5.220%
|
29.7
|
9.6
|
17.4
|
2.0
|
| EXXON CORP |
175032.0
|
1.763%
|
17.7
|
0.311
|
1.168%
|
23.8
|
4.0
|
14.3
|
2.2
|
| COCA-COLA CO |
168817.5
|
1.700%
|
3.2
|
0.054
|
0.204%
|
45.1
|
21.5
|
53.0
|
9.1
|
| PFIZER INC (PFE) |
160764.2
|
1.619%
|
55.2
|
0.894
|
3.351%
|
71.2
|
18.6
|
78.1
|
12.1
|
| CISCO SYSTEMS INC (CSCO) |
152482.7
|
1.536%
|
151.0
|
2.318
|
8.692%
|
98.6
|
19.2
|
49.6
|
16.8
|
| LUCENT TECHNOLOGIES INC (LU) |
149944.6
|
1.510%
|
176.7
|
2.668
|
10.002%
|
63.6
|
30.5
|
58.4
|
5.1
|
| AT&T CORP |
139416.6
|
1.404%
|
33.9
|
0.476
|
1.784%
|
30.9
|
5.8
|
15.0
|
2.8
|
| MCI WORLDCOM INC (MCI) |
137127.8
|
1.381%
|
140.8
|
1.944
|
7.288%
|
#N/A
|
3.1
|
42.9
|
3.9
|
| BRISTOL MYERS SQUIBB |
130282.1
|
1.312%
|
36.9
|
0.484
|
1.813%
|
36.9
|
17.3
|
39.8
|
7.3
|
| PHILLIP MORRIS |
127444.8
|
1.283%
|
14.2
|
0.182
|
0.682%
|
19.8
|
7.4
|
13.1
|
2.3
|
| PROCTER & GAMBLE |
121402.7
|
1.223%
|
10.9
|
0.133
|
0.500%
|
32.6
|
10.2
|
25.0
|
3.3
|
| JOHNSON & JOHNSON |
111629.3
|
1.124%
|
27.7
|
0.311
|
1.167%
|
31.0
|
8.0
|
24.1
|
4.9
|
| BANK AMERICA CORP |
106808.7
|
1.076%
|
-1.8
|
-0.019
|
-
0.073%
|
17.8
|
2.3
|
11.2
|
2.3
|
| AMERICAN INTERNATIONAL |
105389.6
|
1.061%
|
37.7
|
0.400
|
1.498%
|
28.9
|
4.1
|
59.6
|
3.8
|
| ROYAL DUTCH PET -NY REG |
104802.5
|
1.055%
|
-10.0
|
-0.106
|
-
0.396%
|
29.6
|
2.9
|
14.0
|
3.6
|
| SBC COMMUNICATIONS INC |
102935.3
|
1.037%
|
44.5
|
0.462
|
1.731%
|
26.3
|
8.9
|
12.0
|
3.7
|
| BELL SOUTH CORP |
95697.3
|
0.964%
|
75.3
|
0.726
|
2.722%
|
29.7
|
6.0
|
12.8
|
4.2
|
| DELL COMPUTER CORP (DELL) |
95642.8
|
0.963%
|
241.1
|
2.322
|
8.706%
|
72.2
|
49.1
|
42.1
|
4.4
|
| LILLY (ELI) & CO |
94365.4
|
0.950%
|
19.3
|
0.183
|
0.687%
|
47.4
|
20.9
|
37.2
|
9.7
|
| BELL ATLANTIC CORP |
86682.9
|
0.873%
|
24.7
|
0.216
|
0.810%
|
29.8
|
6.9
|
8.4
|
2.8
|
| HOME DEPOT INC |
86934.8
|
0.866%
|
102.4
|
0.887
|
3.326%
|
57.2
|
10.3
|
44.7
|
3.0
|
|
Source: CompuStat Database and Value Line |
|||||||||
The chart below shows
how dramatically a few stocks can influence an index of 500 stocks. The
total 1998 return for the S&P 500 was 28.57%.
Of this return:
• 4 stocks represented 44.6% of the gain.
• 6 stocks reperesented 59% of the gain.
• 10 stocks
represented 77.1% of the gain.
|
Stocks
that Move the S&P500
|
|||||
| 4 Stocks | 6 Stocks | 10 Stocks | |||
| MSFT |
17.2%
|
MSFT |
17.2%
|
MSFT |
17.2%
|
| LU |
10.0%
|
LU |
10.0%
|
LU |
10.0%
|
| DELL |
8.7%
|
DELL |
8.7%
|
DELL |
8.7%
|
| CSCO |
8.7%
|
CSCO |
8.7%
|
CSCO |
8.7%
|
|
% of S&P gain from 4 Stocks Source: CompuStat Database and Value Line |
44.6%
|
MCI |
7.3%
|
MCI |
7.3%
|
| WMT |
7.1%
|
WMT |
7.1%
|
||
|
% of S&P gain from 6 Stocks |
59.0%
|
IBM |
5.2%
|
||
| INTC |
5.0%
|
||||
| GE |
4.6%
|
||||
| PFE |
3.4%
|
||||
|
% of S&P gain from 10 Stocks |
77.1%
|
||||
If you take the average stock that is publicly traded, it was down in 1998. This can be confirmed by reviewing another diversified index, the Russell 2000. The Russell 2000 is more representative of the average stock. It measures the performance of the 2,000 smallest companies in the Russell 3,000 index. The Russell 3000 measures the performance of the 3,000 largest US companies based on total market capitalization. If you take these 2,000 companies that the Russell 2000 measures, as a composite, they lost 3.5% in 1998.
The third, and certainly the largest, index to review is the NASDAQ. Money manager David Dreman wrote an article for the February 8, 1999 issue of Forbes titled "The Year That Passed Value By". In this article he stated that the 4,600-stock NASDAQ index, which is weighted for the capitalization of its companies, was up 40% for 1998. However, 20 large-cap stocks, most of them technology related, were responsible for 85% of the index's gain. Take them out, do an unweighted average of the other 4,580 stocks, and you have a loss of 4%.
By closely reviewing the S&P 500, the Russell 2000, and the NASDAQ, we can see that the performance for 1998 was entirely due to a handful of large-cap stocks, most of which were technology related. The remaining thousands of stocks, as a group, were down on average between 3.5% to 4%, depending on which index you want to examine.