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B400 Out-Performs Other Indexes As It Shifts Gears

John A. PrestboJohn A. Prestbo

With 2018 pushing toward the halfway mark, the Barron’s 400 Index is outpacing many broad-market indexes. As of last Friday’s close, the year-to-date performance of the Barron’s 400 was more than double that of its benchmark, the Dow Jones Total Stock Market Index.

Year to 5/18 % Change
DJIA -0.02%
DJ Total Stock Market 1.97%
Barron’s 400 4.17%
S&P 500 1.47%
NYSE Composite -0.71%

Nearly one-third of the Barron’s 400 advance came in the preceding week, during a small-stock rally. More than 13% of the Barron’s 400 components are small- and micro-capitalization stocks, and each of them carry as much weight as Apple, Inc. in this equally weighted index.

Sometimes it’s instructive to study an index when it is doing the opposite of its larger-context move. For the Barron’s 400 that was down period from mid-March through early May, during which the index slipped as much as 5% and then struggled to recoup it all. March 16 was the last day before the current Barron’s 400 components were added in the most recent semiannual rebalancing. The market dipped then, too, but the Barron’s 400 stayed ahead of its benchmark.


Some interesting shifts were occurring at the sector level during this period. Among them was the consumer discretionary sector breaking out into a leadership position, while the materials and telecommunications sectors changed course from leaders to laggards. First, let’s look at the leading sectors.


Consumer discretionary at first dropped along with the Barron’s 400, but quickly snapped out of me-too mode and climbed to first place. Energy ended up a close No. 2, but it had to shake off a one-week skid that dragged the Barron’s 400 lower. Only consumer staples remained positive throughout the period, riding on its reputation as defensive against declines—although that advantage faded as the Barron’s 400 began to recover.

By the way, the Barron’s 400 lines in these charts are based on the median price of all components rather than on the index levels themselves. This choice is more compatible with the median prices of sectors.


The next chart shows how the materials and telecom sectors abruptly ran out of gas toward the end of the period. Materials, in fact, was helping pull the Barron’s 400 higher for roughly a month before it plunged deeply into negative territory. Technology was out of favor in this period, though it was showing signs of recovery toward the end.

Among size segments, mega caps was the only one consistently pulling the Barron’s 400 higher. In the final two weeks of the period, small caps rallied into first place and large caps crept into a distant No. 3 position. The stunner was the weak performance of mid-caps, which started out bad and got worse as the period unfolded. Micro-caps were far and away the lowliest laggard, but they staged a remarkable rebound in the final two weeks, presumably riding the coattails of small stocks.


It’s always fascinating to peer under the market’s hood to see the various parts moving around. Occasionally this exercise yields an indication of what might happen next. More regularly it simply provides a more complete sense of how the market is moving. Be particularly alert when a bull market takes its naps or a declining market jumps to life, for these often are times when gears are shifting down below.

John Prestbo, senior advisor to MarketGrader Capital, was formerly editor and executive director of Dow Jones Indexes. He was also chairman of the Dow Jones Index Oversight Committee. During his time at Dow Jones Indexes he worked, along with Barron's and MarketGrader, on the development of the Barron's 400 Index. Prior to that, Mr. Prestbo worked as an editor and writer for The Wall Street Journal in various capacities, including page-one editor, commodity news editor and markets editor. Mr. Prestbo has co-authored or edited several books over the past 30 years. The most recent was "The Market's Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average," published by Dow Jones Indexes in 1999 and "Barron's Guide to Making Investment Decisions" which he helped to compile and edit in 2006. Mr. Prestbo won the University of Missouri Award for Distinguished Business Writing in 1967 and the George M. Loeb Achievement Award for Business Writing in 1968. In 2007, he won the William F. Sharpe Indexing Lifetime Achievement Award. That same year, he was honored for his leadership by Dow Jones Indexes during its celebration of 10 years as a separate business unit.

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