Home Guides & Resources chevron_right Investing What Do Market Indexes Really Tell Us? Published November 17, 2020 https://www.adviserinvestments.com/wp-content/uploads/qw1020-what-market-metrics-are-reliable.mp3 What metrics can investors use to understand how the overall market is doing when a small number of companies are really outperforming? Portfolio Manager Charlie Toole explained why he looks at equally weighted market indexes in our recent webinar,* Looking Beyond the Election to the Recovery’s Future. Please enjoy the excerpt below and click here for the full webinar replay to hear more. * * * * * Charlie Toole: We’ve had a handful of tech stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. that have performed very well this year. To really gauge how the overall market is doing, I would suggest looking at what’s called an equally weighted index. So, the S&P 500 has what’s called a “market capitalization weighting.” That means that the larger stocks make up a larger portion of the index. Apple, Microsoft, Amazon, Facebook and Google—those top five stocks represent nearly 25% of the S&P 500. When those stocks perform well, like they have this year, they can really drive the returns of the overall market. On the other hand, when you look at an equally weighted index that weights all the stocks the same throughout the index, you can get a better sense of the overall market. So, instead of Apple having a 6.5% weight in the S&P 500, it has just a 0.2% weight in the equally weighted S&P 500. So, its performance will drive the market the same as all the other stocks. So far this year, updated as of today’s not-so-great day [October 28, 2020], the equally weighted index is down about 6.5%, while the traditional S&P 500 is up nearly 3%. This tells us that the average stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. or the larger stocks in the S&P 500 are performing better than the smaller ones. I think the equally weighted index is the best way to gauge how the overall market is doing. * * * * * Click here for a replay of Looking Beyond the Election to the Recovery’s Future. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions. *Webinar recorded after the market closed on Wednesday, October 28, 2020. Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time, without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs. © 2020 Adviser Investments, LLC. All Rights Reserved.