- It has been a stellar year for the major indices, which have been setting records with some regularity.
- Investors should not be deterred from making purchases in the name of bargaining. Stocks in a wide range of industries have slipped through the year and could present good opportunities.
- Review the shares you own that have fallen, confirm that their earnings growth is sustained, and make your selections when making your purchase.
The market, no matter which index we use – the S&P 500, the Dow or the Nasdaq – keeps climbing and making new highs. With that type of trajectory, we can assume there’s no bargaining around. truth? No – that’s a lie.
While it may seem logical to assume that each stock has participated in a sustained march upwards, it is worth noting the action under the covers. As of November 9, 16%, or 82, of S&P shares are down at least 15% from highs achieved in the first ten months of 2021. Fifty-three stocks, or more than 10% of the index as a whole, are down 20% from their recent highs.
The table below shows this phenomenon, compiling all stocks in the "falling" category in descending order of average decline for their constituents by industry sector.
For example, as of November 9, the worst group is Communications Services (32.8%), which includes Discovery (down 66%), ViacomCBS (down 65%) and several gaming stocks including Penn National and Las Vegas. Sands, who was working hard to rekindle the enthusiasm for the emergence of only the Covid delta version of the virus.
The list of all collapsing stocks covers a wide range of industries. Tech names are at the fore, with 17 companies down at least 15% from recent highs as of Nov. 9. This is followed by health care and consumer discretionary.
Energy, real estate and financial sectors were least affected, reflecting their position as the strongest sectors this year. Within the mix are companies such as Twitter, Intel, Moderna, Alaska Air (and most airlines), Clorox, Activision Blizzard, PayPal and Kraft Heinz.
It's not unusual for 16% of S&P stocks to be down 15% in the last two months of the year from their current year highs. Looking at the last seven years, we find that there are 130 names in the average "fallen" group. These numbers have skewed over the years, such as 2020, when the market fell 34% from late February to March, with many stocks never regaining their early-year positions.
This year has been unique in terms of growth and shifting performance in value stocks, which have changed leads at least four times since January. (Based on monthly cumulative data this lead has changed four times. Using daily cumulative data, this lead has changed 15 times.)
These moves hit many stocks hard, once his group surrendered leadership after a sharp rally. After losing momentum in an evolving leadership environment, does it make sense to review inventory for potential purchase ideas?
It is a useful exercise to examine how these depressed stocks perform over the next 12 months. The table below highlights the performance of those stocks down at least 15% in that year and price changes for the next 12 months. Except in 2019, the fallen stocks outperformed the S&P the following year.
The right strategy might be to review the stocks you own that are down significantly this year, keep their earnings growth intact, and make a select few purchases. Points are in your favor.
Karen Firestone is the President, CEO and Co-Founder of Aureus Asset Management, an investment firm dedicated to providing contemporary asset management to families, individuals and institutions.