When the stock market is going up people pay attention to the index.  And what a year the S&P is having.  YTD it’s up roughly 20%.

When the market is down as it was yesterday people pay attention to the stocks they own.  Why?  Just because “the market” is up doesn’t mean all stocks are moving in the same direction.  What’s more as a cap-weighted index the returns of larger stocks dominate the total return of the index.

Food for thought:

  • The 25 largest stocks (or 5% of the 500 stocks in the index) are responsible for 55% of the 20% gain.
  • 78 stocks (or almost 16% of the 500 stocks in the index) are down YTD.
  • Speculator favorite GameStop is 57% below its record high.
  • Zoom (because none of us will ever work in an office again – insert eye roll) once had a larger market cap than Exxon.  Exxon!  Zoom is 50% off its record high.
  • Opendoor and Zillow are “disrupting” real estate.  No need to show up.  Just buy a home virtually.  What could go wrong?  Both stocks have been cut in half.

We’re not arguing for/against choosing individual stocks.  We’re not arguing for/against indexing.  We’re simply pointing out that there’s more to “the market” than, well, the market – real companies with real products/services providing real (or perceived) benefits for which people are willing to pay.

In the long run profits drive stock prices.  In the short run there are too many variables – most of which are irrational, illogical and unrelated yet people love to talk about them.  Coincidence?

As always buyer beware.