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B400 Leads Stock Market Recovery

John A. PrestboJohn A. Prestbo

Rebounding stock prices are gladdening the hearts of investors after Santa left lumps of coal in their stockings last Christmas Eve. And in this recovery the financially strong companies in the Barron’s 400 Index is leading the way over the S&P 500 index.

The market drop last year actually began in October, but for our purposes we looked at performance in December and January. These two months formed the “V” in stocks’ plunge and revival, as shown here:

Index Performance
12/3/2019 to 12/24/2018 12/24/2018 to 1/31/2019
Barron’s 400 -17.79% 18.16%
S&P 500 -15.74% 15.01%

To be sure, the Barron’s 400 fell more than the S&P 500 in the December downturn. That isn’t surprising, given that the Barron’s 400 includes mid-capitalization and smaller stocks at equal weighting with the behemoths. Even so, the Barron’s 400 on Jan. 31 was 2.85% short of its Dec. 3 level while the S&P 500 had 3.1% to go.

The sector drivers for the two indexes are somewhat similar, but with one major difference. Energy stocks scored the largest median price increase for both indexes, and the top three sectors for both included technology. But materials helped boost the Barron’s 400 and health care was the second-largest contributor to the S&P 500.

Median Performance of Component Stock Prices
12/24/2018 to 1/31/2019
Barron’s 400 S&P 500
Consumer Discretionary 16.87% 16.06%
Consumer Staples 10.00% 6.51%
Energy 21.98% 23.44%
Financials 18.65% 16.26%
Health Care 15.21% 18.30%
Industrials 18.61% 16.80%
Materials 21.25% 14.70%
Technology 21.93% 17.53%
Telecommunications N.A. 5.51%
Utilities 7.14% 8.08%

Six sector rebounds were dominated by the Barron’s 400 and four by the S&P 500—including telecommunications, which has no components in the Barron’s 400, and utilities, of which the Barron’s 400 has five vs. 27 in the S&P 500. The margin of outperformance for the Barron’s 400 was 3.2 percentage points in its six sectors and 1.83 for the S&P 500 (not counting telecom, where the outperformance was infinite).

In terms of size, large caps were the superior segment for the S&P 500 while mid-caps led the Barron’s 400. In the two size segments that both indexes share, the Barron’s 400 outperformed by an average 1.4 percentage points.

Median Performance of Component Stock Prices
12/24/2018 to 1/31/2019
Mega Cap (>$10 billion)
Barron’s 400 18.10%
S&P 500 16.06%
Large Cap ($3 bln-$10 bln)
Barron’s 400 18.65%
S&P 500 17.90%
Mid Cap ($1 bln-$3 bln)
Barron’s 400 18.96%
S&P 500 N.A.
Small Cap ($500m-$1 bln)
Barron’s 400 18.24%
S&P 500 N.A.
Micro Cap (< $500 mln)
Barron’s 400 20.43%
S&P 500 N.A.

Whether the rebound will last and extend the bull market to 10 years is now the subject of Wall Street debate. Whether yes or no, the growth-oriented Barron’s 400 will continue to be an important bellwether in the market mix.

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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