We’ll admit it: we’re guilty, too.
In 2015, market commentariat types (ahem) couldn’t get enough of talking about the FANG stocks, or Facebook, Amazon, Netflix, and Google (which is now Alphabet, but no one wants to be the person who ruins a good acronym).
The hubbub was all about how these stocks — along with just a few others — accounted for more than all of the S&P 500’s total return in 2015. The argument, in short, is that this decline in breadth — which is basically a way of saying how many stocks are going up along with the broader market — signalled something going awry (or about to go awry) in the stock market.
But in a note to clients on Tuesday, JP Morgan’s Dubravko Lakos-Bujas reminds readers that while it’s true there are just a handful of stocks doing most of the work to keep the S&P 500 afloat, nothing way outside historical norms has been going on.
Stripping out the top 10 performers from the S&P 500 last year and the index’s total return (which includes the 2% divided) would have been negative. As it stands, the S&P’s total return was 1.4% in 2015.
As Lakos-Bujas’ chart shows, when the bottom 490 stocks in the S&P 500 fall the roughly 8% they have over the last 12 months (remember: stocks have lost about 6% already this year) and the top 10 stocks return about 4%, the market is basically behaving as expected.
And so while it is true just a handful of stocks are doing most of the work, when you think about moments of really outsized market euphoria, things are looking pretty normal.