What Companies are Moving the Stock Market in 2020? What Goes Up Must Come Down

by birtanpublished on September 10, 2020

Hi i'm jimmy in this video we're looking at what's been happening with the stock market and i'm sure we'll understand why the stock market crashed earlier this year thanks to the coronavirus and maybe we can even understand

That the market rallied once the federal reserve stepped in and the government stepped in and started doing stimulus things along those lines maybe we can understand at least some of

The initial rally but i recently heard that just a few tech stocks were ultimately what caused this huge rally and i wanted to see if that was true and perhaps if that is true perhaps

There are some opportunities out there for value investors in some sectors that perhaps haven't had the same rally so that's the goal of this video and then hopefully we can use that information

To make better investment decisions and ideally get us closer to our goal of achieving financial freedom okay so first let's look at what has happened with the s p 500 over this past year and if we're curious

On a total return basis now total return assumes that we reinvest any dividends that we receive back into the stock that paid that dividend so for the s p 500 the stock market

We're going to use the s p 500 as a representation of the stock market they were about 17 for the entire year so assuming we reinvested all those dividends that each stock in the s p 500 paid we

Reinvested that we would have made 17 from a year ago okay now that's decent but if that would be decent in a regular year if we consider that we had the stock market crash

And then a huge recovery well suddenly that 17 percent looks fantastic now if you're curious during this time period here coming off of the bottom of the stock market the blow of the s p 500

Back in late march well we're up 41 since that time okay so let's look at how this happened and we're just looking at what stocks and what sectors did well how they performed

And which ones overall contributed to the stock market or the s p 500 moving higher since the end of march so i put together this table the first column here is how much each sector represents in the entire s p 500

So we can see that information technology represents about 20 of the entire s p 500 so that's quite huge and the way they determine how much weight each sector gets

Is how big the companies how big the companies are within that sector we'll come to the individual companies in a second so this next column this is a total return for this same time period from the low

To where it is today well we can see that consumer discretionary stocks performed the best then information technology then material stocks but when we calculate the contribution to

The total return well now we can see that information technology stocks made the biggest impact on the total stock market returns this contributed 13.3 percent of the 41

That the stock market has put up since the bottom that's more than 30 on a total return basis so of all the returns that the stock market had since the bottom this contributed 13 so we'll come back to this table in a

Second but for now let's shift over some to some of the individual companies so let's scroll the list of companies from the s p 500 and just like before the second column

Is the weight that they how much they represent of the total uh index and we could see that microsoft was up 45 and apple was up 97 over this time period

Okay so we can see that both microsoft and apple represent about five point seven percent of the total fund each now these two stocks combined contributed more than seven percent of

The s p 500 performance don't forget they were up 41 so seven percent of that 41 can be explained by just these two companies now for curious microsoft and apple fall under the

Information technology sector while facebook and alphabet fall under the communication services sector and amazon is in the consumer discretionary sector so that helps explain at least some of the returns

For those segments now as far as opportunities go i'm a bit surprised that health care was only up 32 from the bottom i would have thought that in a covid world

They would have done much better than that so it might be worth digging into some of those a bit deeper i'm also a bit surprised by consumer staples now these are companies that in theory

People will keep buying their products no matter how the economy does or at least still they need these products so things like kellogg's coca-cola clorox so there's going to be consumer staples

Things that most people continue to buy no matter what their you know financial situation is so i think we can all agree the with the fact that the stock market is up a surprising

Amount right now sure i understand the fed's involvement and big companies like these continue to do quite well which is of course making the total stock market look much better

Since the s p 500 and the dow but the s p 500 is a big headline stock market index but i would have thought that some of the more defensive names uh as the stock market has moved higher

Would have thought that there would have been some fear of uh stock market pullback so i thought what are some of the defensive names would have done a bit better either way it looks like they

Haven't just yet that being said i started pulling down the price to earnings ratio or p e ratios for as many companies as i could get my hands on for the s p 500 so i broke down the s p

500 by sector so you could pause it if there's any companies that look interesting to you put in anything you might think in the comments below something we should dive deeper into

Now i also included i used a trailing pe which is today's price and the past 12 months of earnings per share and i also included a forward p e ratio which is today's price stock price and

The expected next 12 months of earnings per share and i did both because i figured that many companies might have skewed numbers it's easy to

Look at a company that had their earnings hit during covid and say oh my god look at how overpriced this is good example of that is disney clearly this is a crazy high p e ratio

Now i personally bought disney during the covid crash when it first started crashing stock dropped below 100. i personally bought it then i still own that today if you're curious but this looks way

More overvalued since earnings have been hit with their parks being shut down and with some of the movies movie theaters being shut down things along those lines so

As we scroll through some of these individual sectors i also think it's important to point out that perhaps price to earnings ratio isn't the best eat a metric to look at in this type of

Situation a good example of that is this whole real estate sector here well we can see that these real estate sect these real estate pes look crazy high but one of the reasons

For that is uh pes aren't actually great for reits much better for that instead of a price to earnings ratio would be something like price to funds from operations

So if you're curious switching that one out will run the price from funds from operations now and we can see they look a bit more reasonable so i wouldn't take the pe ratio at face value in that case

So i do think that using pe or some sector-specific metric is a good way to identify potential companies to look closer at companies that we might want to research a bit further

But once we find those companies i think it makes more sense to do an in-depth valuation uh using more than one valuation method don't just lean on pe or even press to funds from operations

I think it makes sense to use two or three different valuation types to get a better understanding of what the intrinsic value of that company could truly be and if you're interested i actually did

A video where i go through some of the more popular valuation methods and where to apply them in different industries which industries to avoid with the different methods things along those lines so if you're

Curious perhaps that could be a good next video for you to watch i got a link right here i got a link in the description below and thank you so much for sticking with me all the way to the end of the video

I really appreciate it thanks and i'll see in the next video

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