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John Prestbo's Indexed Investor
Aug 6, 2009, 12:01 a.m. EST
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Target-date funds need better aim
First Take "º
Twitter outage shows its ongoing vulnerability
By John Prestbo
NEW YORK (MarketWatch) -- The stock market's recent joyful buoyancy fits well with summer vacation. How long it lasts remains to be seen. But meanwhile we can take the trouble to learn what makes it tick.
We will use the Dow Jones Total Stock Market Index family for this purpose since it covers the entire U.S. stock market. Many other indexes exhibit similar behavior in movement -- the S&P 500 and the Nasdaq Composite leap to mind -- but for statistical consistency it is best to avoid a potpourri methodologies and coverage.
The Nasdaq's rise to its highest level in 10 months, throwing the spotlight back onto the index's big tech stocks. Some observers say that winning streak could bode well for the broader stock market. MarketWatch's Rex Crum reports from San Francisco.
Through July, the DJ U.S. TSM index was up 12.6% this year on a total return (including dividends) basis. Most of the propellant came from small stocks, which gained 22% to large stocks' 11.5% advance.
Keep in mind that large stocks account for 88% of the index's market capitalization, however, and thus dominate the overall performance.
Growth stocks (up 19.6%) outshone value stocks (5.5%). Among the 10 major industries, technology did the best with a 38.5% improvement, while telecommunications lagged at a lowly 1.4% increase.
But these stats mask two very different stock markets.
The first was a continuation of 2008's vicious bear market. It lasted from New Year's through March 9. The DJ U.S. TSM index sank 24.5% during this winter of discontent, tugged down by both large-cap (off 24%) and small-cap (minus 29%) stocks. Value stocks fell more (down 29%), though growth stocks were not far behind (20% lower). Financials led the decline (plunging a full 44%) and technology was down the least (minus 13%).
Then came the spring thaw and the market perked up just as the weather grew warmer. The DJ U.S. TSM index rallied 49% from March 9 through July, boosted by a 46.5% thrust in large stocks and a remarkable 72% surge in small stocks. Both growth and value stocks took off, with near-equal advances that rounded to 49%. Financials led the rebound (up 84%) while telecommunications posted the smallest gain of "only" 28%.
Yet, these basic summaries shed illumination only so far. For example, financials fell the most early in the year, and then regained the most in the recovery. That, in itself, is not surprising.
But if you presumed that banks were the prominent perpetrators in both periods, digging deeper reveals a surprise: Life insurance stocks fell the most in Market No. 1 (down 66%) and did the best in Market No. 2 by rocketing an amazing 204%.
What other obscured facts might be discovered through data diving?
Well, the bounce back in financials occurred mainly in large stocks. From March 9 through July 31, financials advanced 88.6% in the large segment compared with a 67% improvement in small stocks. And as might be expected, financials' large-cap gain was twice as strong in value stocks (up 104% in Market No. 2) as in growth stocks (up 50%).
Financials' down-and-up volatility did not produce much, however -- just a 3% gain for the year through July 31. Technology, because it fell the least in Market No. 1 and snapped back 60% in Market No. 2 (ranking third in rebound strength), turned in the best performance for the first seven months.
Even more impressive was basic materials, comprised of chemicals, forestry and paper, industrial metals and mining. This industry sank a relatively modest 23% early in the year, subsequently recovered by 74% and thereby posted a seven-month gain of 35%. While the industry's small stocks slightly outperformed large stocks (37% to 34%), its growth-value split was practically even, around 34%.
However, homogeneity did not prevail across the board.
- JohnMD | 2:48am Today2:48am 8/6/09
The much-ballyhooed microblogging service Twitter demonstrates once again it is vulnerable, with a big outage on Thursday.
3:27pm Today3:27pm 8/6/09 | Comments: 6
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