Advisor Insights Market News Weekly Market Commentary

Market Commentary: Is Narrow Normal?

There is a lot of focus right now on the “narrowness” of the market expansion.

Written by: Benjamin Bimson CIMA® / BCJ Financial Group

Narrow leadership in stock market returns relates directly to relatively few stocks. Many times we talk about the S&P 500 because it is one of the most discussed indexes in the news. The S&P is doing great, but technology stocks are doing even better.

S&P 500 compared to the legendary FANG stocks (now Alphabet) – which are leading the market YTD


Chart Source: BCJ Financial Group

Chart Source: BCJ Financial Group


FANG stocks and technology stocks in general are doing better. On May 22, 2017, the NASDAQ 100 Index (NDX) YTD return was 17.18% and highly concentrated in 6 of the 100 stocks that make up that index. Ned Davis Research created a chart of those 6 stocks and how much of that return they have contributed to YTD. The numbers are fairly shocking.1


Chart Source: Ned Davis Research1

Chart Source: Ned Davis Research(1)


According to Ned Davis Research, in the time that the NDX was up 10-25%, between 2 and 4 stocks accounted for half of the gains. Additionally, in the S&P 500 (a more diverse index), there are 12 stocks accounting for 50% of the gains. In the years where the S&P 500 has been up 3-11%, a median number of 10 stocks has accounted for nearly 50% of the gains in those years.1

This is a good argument for investment strategies that use indexes to gain access rather than trying to get the correct few stocks, but today’s favorite could easily become tomorrow’s ugly duckling, and if picking stocks that always win were easy, most active mutual funds would be much better performers. The fact is, it is easy when looking back, but not looking forward. Narrow leadership on the way up might be normal, but guessing could come at a sometimes extreme cost, and could be the difference between dominating greater market returns and under performance.


View More Articles

Learn More About BCJ Financial Group


Contact Us


1- U.S. Markets. Ned Davis Research. May 24, 2017 [5/26/17]

Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory Service offered through BCJ Capital Management. World Equity Group, Inc. and BCJ Capital Management are independently owned and operated. Investment advisory services are offered through BCJ Capital Management, an SEC registered investment adviser. BCJ Capital Management is a (SEC) registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. BCJ FG 17-478

You Might Also Like