A Look at the S&P 500 Stocks

A Look at the S&P 500 Stocks

Posted on June 24, 2020
A little over one week ago, the S&P 500 dropped by -6% in one single day.  Last week, the index rose by 1.8%.  For the most part, the days following the large outlier have been more normal, with the only outlier being the +1.90% day that followed the large drop.  However, the recent few days have been very wide ranging.  In the trading days since the -6% drop, half of the trading days have had a difference between the high for the day and the low for the day being more than 2.25%.  As an example, on Friday, the S&P 500 opened the day at over +1.00% but finished down for the day.

This is not a characteristic of a healthy, normal market environment.  For reference, in the 6 months leading up the market’s February 19th high, which was a stable, efficient market environment, the average daily range was only about 0.70%.  In other words, even if some trading days have felt more normal, they are still seeing a high degree of volatility.

Canterbury stock market indicators show that we are still in a High-Risk environment with high volatility.  High volatility does not guarantee that the markets will go down in the immediate future but indicate that the markets are very risky and have the probabilities to continue to experience a wide degree of fluctuation.

Market Comment
Two updates ago, Canterbury discussed the concept of the “dash for trash” and “Fear of Missing Out.”  That update can be found here: https://www.canterburygroup.com/The-Fear-of-Missing-Out.html.  In summary, a recent market rally had been led by stocks that had previously gotten slammed in the initial downturn and had not yet experienced the snapback rally like the rest the general stock market.  These stocks included the likes of United Airlines, American Airlines, Norwegian Cruises, Royal Caribbean, and Simon Properties.  It was mentioned that even with a substantial rise over the course of 3 weeks, these stocks were well off by more than -50% from their previous highs.

Since the writing of that weekly update, each one of those listed stocks has fallen 20-30% in a period of only 10 trading days.  The point here is that high volatility works both ways.  These stocks experienced a much larger drawdown than many other equities, then saw a huge rally over a short period, followed by another large drop.

S&P 500 Stocks
Looking at the individual components of the S&P 500 stock market, we can see that most S&P sectors have most of their components in Bearish or Transitional Security States, or in other words, high risk.  The one sector that has a majority of securities with lower risk is Technology.  The technology sector is also the largest component of the S&P 500.  Some of the weaker sectors include financials, energy, real estate, and materials.

Note that this chart is not capitalization weighted.  This means that every component is given the same amount of weight in determining the percentage that is Bullish, Transitional, or Bearish.  The S&P 500 is a capitalization-weighted index, meaning that the larger stocks have a larger impact.  Looking at this chart, consumer discretionary has over 60% of its stocks in a high-risk environment.  The reality, however, is that Amazon makes up over 30% of the sector’s capitalization and has been in a Bullish Security State and carrying the sector’s performance.

Source: AIQ

Bottom Line
The market is still in a high-risk situation. Stocks that have been volatile, remain volatile (like the airlines, cruise liners, and real estate), while many stocks in the technology sector (plus Amazon) lead the market.  The S&P 500 and many other indexes have experienced wide-ranging days.  For instance, on Friday, the market opened over +1.00%, but finished down for the day.  The expectation remains that the market will experience volatility.  June 12th saw a large percentage down day seemingly out of nowhere.  Any piece of news or any fears/emotions from investors can shift the markets dramatically in either direction.  It is important to have a stable portfolio that maintains a consistent, rational volatility in this type of environment.
Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

Canterbury Investment Management: Tom Hardin

More About Brandon Bischof

Brandon is directly responsible for managing the Canterbury Analytics Group (CAG). To date, Canterbury Analytics Group has played an important role in advancing portfolio management from a loose art form based on subjectivity and obsolete assumptions to an adaptive process with scientific rules and methods capable of providing evidence based results and statistically relevant value add results.

Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.