One of my favorite regular analytical pieces produced by the folks at Bespoke Investment Group is their monthly S&P 500 Decile Performance. The grid does a great job of explaining which factors are driving stock market performance in the month. During the middle of a year, these trends tend to be persistent from month to month.
To run the analysis, Bespoke breaks the 500 stocks of the benchmark index into deciles (10 groups with 50 stocks each) based on the various stock characteristics shown in the matrix below. They then calculate the average performance of the stocks in each decile during the month of July. The matrix highlights the average performance of stocks in each decile
Here's what the grid above tells us, with additional insights from the Bespoke analysts.
-- The average stock in the S&P 500 gained 0.80% in July with the bulk of the gains coming in the middle part of the month.
-- Mega-caps (the largest 50 stocks in the S&P 500) surged in July, with the average stock in this decile gaining 2.9%, the best performing decile based on market cap. The two deciles containing the smallest stocks in the S&P 500 both averaged declines during the month. Pretty wide disparity for this characteristic.
-- Valuation did not matter much, though stocks with lower valuations did underperform during the month.
-- Dividend yield did not matter. Both the highest yielding stocks and the stocks with no yield outperformed, while the stocks that pay dividends but have very low yields all averaged declines.
-- Stocks with high levels of short interest did very poorly in July, continuing a trend seen all year. Even in this market where the broad indices have trended slightly higher, the analysts report, short sellers have managed to do well because the most highly shorted stocks are posting declines. Conversely, the least shorted stocks all did well in July.
-- The 50 stocks most loved by analysts (stocks with the most buy ratings) gained an average of 2.9% in July, while the 50 most unloved stocks fell an average of 0.5%.
-- Heavy international exposure hit performance hard in July. The decile of stocks that generate the highest percentage of their revenues outside the U.S. fell an average of 2.5% during the month.
-- The 50 stocks in the S&P 500 that did the worst in the first half continued to underperform in July, falling an average of 3.8% during the month! The 50 best stocks in the first half gained minimally, while the next 50 gained 2.9%. Winners remain winners, and losers remain losers.
Again, please note that these factor trends tend to persist during a year, so these findings merit attention.
-- Jon D. Markman
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