Buckle up, folks. We are starting off 2024 with numbers and statistics!
13.70%. 24.23%. 43.42%. These are the respective 2023 returns for the Dow Jones Industrial Average (DJIA), S&P 500, and NASDAQ indices, per FactSet.
30. 500. 3000 plus. These are the number of companies represented in the DJIA, S&P 500, and NASDAQ indices, respectively.
28.12%. This is the percentage of the S&P 500 (as of this writing) that is represented by only 7 companies – you can probably guess which ones. That’s right, the Magnificent Seven are 1.4% of the total companies in the index but represent over a quarter of its behavior.
11.72%. If each company in the S&P had their return weighted as 1/500 of index’s performance, this number reflects the 2023 performance. We call this an equal-weight return since the size of the company’s market capitalization does not affect the return attributed to the index.
In May and October 2023, the Magnificent 7 stocks were up over 10%, while the rest of the S&P experienced negative returns. If you have ever heard the term “narrow market,” 2023 was a prime example of that phenomenon. And my favorite narrow market statistic of all; in the month of October 2023, the Magnificent 7 delivered over 100% of the S&P’s return. Talk about carrying the team!
If you invested in one of those 7 companies before 2023, congratulations. That was a smart choice. The dilemma with narrow markets is that they do not last forever. I got curious when I came up with the idea for this blog, and did some research on the biggest single-year market returns for companies in the S&P.
I found a list outlining the top 50 performers by price return since 1980. Unsurprisingly, the biggest gains are clustered in a few select years when the US stock market was hot; the dot-com boom in 1999 (Yahoo made the list with a 265% increase in price), the 2003 stock rally (Avaya, 428%), the recovery from the Global Financial Crisis in 2009 (Genworth Financial, 301%). This may come as a surprise to you, but I almost expected this next statistic: on the Top 50 Performers list, only 4 of the 10 companies with the biggest single year price return are still publicly traded on the S&P 500.
Many of you may be thinking “Grace, I work with you so that I never have to pay attention to numbers like these. This is your job.” I get it. Honestly, I do.
Reading headlines last year, 2023 seemed like a great year for US stocks. The reality behind the headlines was that it was an okay year for the broader stock market, or what I like to satirically call the S&P 493. However, in 2024, we have already seen last year’s big tech gainers start to slow their momentum, and other sectors of the stock market are beginning to awaken from their drowsy states. This is why we firmly believe in diversification. Diversification reduces risk.
Part of our job is to function as historian. Remember 2022? Those same 7 names ended 2022 down an average of 46%. Let me repeat; diversification reduces risk.
Without speculating on what any particular company’s performance will be this year, I think it is safe to state 2024 returns will not look like 2023 returns. It also remains true that no matter the stock market’s behavior, diversification reduces risk.
We hope your 2024 is off to a happy and healthy start. And I’ll make sure my next blog is less statistically focused!
Grace Loveland January 11, 2024
There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing materials are accurate or complete. The S&P 500 is an unmanaged index 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.
Any opinions are those of Grace Loveland and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not indicative of future results. Raymond James & Associates, Inc., member New York Stock Exchange/SIPC.
