By Tom Burnett CFA
Investors are well of the bumpy road experienced by the main stock market indexes so far in 2020. Using data supplied by the May 5, 2020, “Wall Street Journal”, it is apparent that not all industry or Index groups have performed in a similar fashion. Market events thus far in 2020 include a gut-wrenching 35% decline in March-April, followed by a sharp rally back up into early May. The overall performance returns, however, hide a wide variety of separate group returns. For example, the Dow Jones Industrial Average is down 16.8% through the May 4 close. By comparison, the Dow Jones Transportation Index is down 26.8% as the Coronavirus outbreak and lockdown response have devastated the airline and travel industries. The weakest sector—Energy is down over 38% this year, despite the recent rally in crude oil prices to $22 per bbl from below $10 in mid-April. Crude oil is still down 60% for the year.
Several S/P 500 groups have shown wide variations this year. The 500 Index is down 12.0%, but the Technology Index is only down 1.7% for the year. Weak performance by the bank stocks has dragged down the S/P Financial Index by 29.1%, much worse than the S/P 500’s 12.0% decline. In addition, small cap stocks, as represented by the S/P 600 Index have materially underperformed the large cap group. For the year, the 600 Index is down 27.9%, well below the S/P 500 decline of 12.0%.
It should also be noted that growth stocks are outperforming value names by a large margin in 2020. Looking at data supplied by Morningstar, we see that the Vanguard Growth ETF (“VUG”) is down just 2.4% this year. By comparison, the Vanguard Value ETF (“VTV”) is down 19.5%. it is very clear that industry group analysis needs to be an important feature of an investor’s framework and conclusions about where to place his funds.