By Philip van Doorn, MarketWatch
The 2020 stock-market recovery is not all it’s cracked up to be.
Even though the S&P 500 Index has hit record highs, most stocks in the benchmark large-cap index are still down from their pre-pandemic highs. So if you own an index fund based on the S&P 500, you may not be as diversified as you think (as you can see below).
Adding exposure to midcap stocks may help your portfolio perform better as the U.S. economy rebounds.
Without much fanfare, midcap stocks have been the best performers since the market bottom March 23.
Research by Matthew Bartolini, head of SPDR Americas Research, on what he calls “periods of systemic risk” since the mid-1990s shows that midcap stocks have been the top performers during long recoveries after major stock-market declines.
That defies the conventional wisdom that large-cap companies will fall the least during a panic, and that small-cap companies will lead an economic — and stock market — bounce.
You can access Bartolini’s full research report here . SPDR ETFs, overseen by State Street Global Advisors in Boston, have total assets of $767 billion , ranking behind BlackRock’s /zigman2/quotes/207946232/composite BLK +0.24% iShares and Vanguard products.
Weak large-cap rally
The S&P 500 Index /zigman2/quotes/210599714/realtime SPX +1.01% reached its pre-pandemic high Feb. 19. Then it fell 33.9% through the close March 23, before rising 53.9% through the close Aug. 25. So the benchmark index is now 1.7% above the Feb. 19 level and up 6.6% for 2020.
Still, only 188 stocks are up since Feb. 19 and only 219 are up for 2020.
In an interview, Bartolini said: “Last year, 91% of the S&P 500 [members] had gains. On average you should expect majority positive year-to-date in a rally.”
It’s important to remember that the S&P 500 is weighted by market capitalization. That explains this year’s rally for the index as a whole, driven by the FAANG stocks and Microsoft Corp. /zigman2/quotes/207732364/composite MSFT +1.23% :
|Company||Ticker||Price change - Feb. 19 through Aug. 25||Price change - 2020||Market cap. ($ billions)||Share of S&P 500 market capitalization|
|Facebook Inc. Class A||/zigman2/quotes/205064656/composite FB||29%||37%||$642||2.3%|
|Apple Inc.||/zigman2/quotes/202934861/composite AAPL||54%||70%||$2,127||7.5%|
|Amazon.com Inc.||/zigman2/quotes/210331248/composite AMZN||54%||81%||$1,645||5.8%|
|Netflix Inc.||/zigman2/quotes/202353025/composite NFLX||27%||52%||$217||0.8%|
|Alphabet Inc. Class C||/zigman2/quotes/205453964/composite GOOG||5%||20%||$527||1.9%|
|Alphabet Inc. Class A||/zigman2/quotes/202490156/composite GOOGL||5%||20%||$473||1.7%|
|Microsoft Corp.||/zigman2/quotes/207732364/composite MSFT||16%||37%||$1,612||5.7%|
Scroll the table to the right to see all the data.
The combined market capitalization of the FAANG + Microsoft group is 25.4% of the S&P 500’s market cap. Five of the six tech giants are up by double digits since the S&P 500 hit its pre-pandemic closing high Feb. 19.