! Stock Market Retreats and Recoveries
Sam Stovall is chief investment strategist at CFRA Research. He is the author of the books, "The Seven Rules of Wall Street" (McGraw-Hill, 2009) and “The Standard & Poor’s Guide to Sector Investing” (McGraw-Hill, 1995). He writes a weekly investment piece on S&P’s MarketScope Advisor platform (www.advisor.marketscope.com) focusing on market and sector history, as well as industry momentum.


Joe Betz from New York posted 4 months ago:

At the risk of showing my novice status, which I guess I am I would like to ask what distinguishes the S&P 500 Cap weighted Index from the S&P 500 Equal weighted Index. Also where does one find them published?

Charles Rotblut from IL posted 4 months ago:


Cap-weighted indexes give the most weighting to the stocks with the largest market capitalizations. Equal-weighted indexes give each stock the same weighting.

As an example, in the traditional, cap-weighted S&P 500 index, Apple has more influence than WEC Energy. In the equal-weighted S&P 500, the two stocks have approximately the same influence.

For more on the differences, see Tracking the S&P 500 With Mutual Funds and ETFs in the March 2017 AAII Journal.


Lawrence Bugh from TX posted 4 months ago:

In the essay, Sam Stovall points out that investors who buy when the market is down 7% have numerous opportunities to do so and will do very well, using just that "timing" strategy. Two questions: 1. is that down 7% from the last preceding index gain, from the latest market high, or from some other index level standard?

2. If market drops of 7% or greater are a rather optimum time to buy, how long then ought assets (bought on such drops) be held, or (regardless of the hold interval) should they instead be sold when up by a particular percent (i.e. 10, 15%) too?

Russell Kidd from CA posted 3 months ago:

AAII founder Jim Cloonan talks at length about the astonishing performance of equal-weighted indexes/funds compared to their cap-weighted counterparts in his new book, Investing At Level3. For example (page 145), for the three-year period 2000-2002:

1. The cap-weighted Wilshire 5000 was down 14.4% per year, about the same as the S&P 500 (-14.6%). Cumulatively, it was down 37.2%.

2. The equal-weighted Wilshire 5000 was up 2.3% per year. Cumulatively, it was up 7.1%.

3. The cap-weighted NASDAQ Composite was down 30.5% per year. Cumulatively, it was down 66.5%.

4. The equal-weighted NASDAQ Composite was up 50.3% per year. Cumulatively, it was up 240%.

On page 27 of his book, talking about the Wilshire 5000 index, Jim says, "Over the last 45 years (to year-end 2015), the equal-weighted index has outperformed the cap-weighted index 17.1% to 10.5%, for an annualized difference of 6.6%. An investor in the equal-weighted index would now have almost 14 times the assets of the cap-weighted investor if they invested equal amounts at the beginning of 1971. On $10,000 invested, that's $12.2 million versus $894,000."

As Jim says (bottom of page 27), "Equal weighting is not magical in itself. It simply gives more weight to smaller-cap stocks than capitalization weighting does. A weighting approach that gives even more weight to small caps would be even better."

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