Despite Setting All-Time High, S&P 500 Vulnerable Due To Uneven Recovery
Despite the S&P 500 closing at a record high last week, the recovery hasn’t been a rising tide that lifts all boats.
Analysis by CNBC shows that the vast majority of stocks have yet to regain their prior highs. In fact, since the previous high on February 19 and the new high on August 18, only 38% of stocks in the S&P 500 are in positive territory over that time frame. An alarming 62% of stocks are still in negative territory since February 19.
Michael Yoshikami, CEO of Destination Wealth Management, appeared on CNBC last week. The described a “shift in demand” during his appearance. He says it’s the reason why some stocks have fully recovered while others are still reeling.
“It’s not as if everything is rising,” he said. “You pull money out of names that really aren’t attractive given current conditions. And that money moves over to companies that are thriving in this environment.”
Recoveries in Different Industries
The recovery has also varied significantly depending on the industry. In consumer staples, health care, and information technology industries, more than half of the stocks have climbed into positive territory. This happened between Feb. 19 and Aug. 18. Contrast that with stocks in the energy and utility sector where less than 10% of stocks are in positive territory since February 19.
Among the stocks hit hardest since the February peak are Norwegian Cruise Lines (-71%), Occidental Petroleum (-67%), and Carnival Corporation (-67%).
Amazingly, despite the eye-popping rally since the March low, there are six stocks that are still in negative territory from March 23 through August 18: Coty Inc., FirstEnergy, Walgreens, Gilead Sciences, Wells Fargo, and Intel.
Just five stocks, Amazon, Alphabet (Google’s parent company), Apple, Microsoft and Facebook account for 20% of the index by weighting, the biggest weighting for the top five stocks in the index since 1980.
Those 5 stocks alone have accounted for 25% of the overall index return since the March lows.
“Divergence Between Winners and Losers”
Brad Neuman, director of market strategy for Alger, a New York fund manager, says this shows a “record divergence between winners and losers.”
“The mega-cap growth and tech companies have done incredibly well in the pandemic,” said Meghan Shue, head of investment strategy for Wilmington Trust. “We think it is probably a bit too far too fast — there is a great deal of optimism priced into the market right now.”
The uneven recovery puts the market in danger. This is according to a man The Wall Street Journal calls “the hedge-fund king you’ve never heard of.”
Jeffrey Talpins, the founder of Element Capital, warned clients in a letter last week about repositioning his hedge fund. He plans on repositioning his $16 billion hedge fund for a potential downturn after an unprecedented rally.
“We believe that the rally has now extended well beyond levels justified by the state of the economy, and with little regard for the myriad of risk factors looming on the horizon.”