The Dow and other major US equity indices have been seemingly hitting new all-time highs on a daily basis, and although not many are likely to admit it on Twitter, if you look at your portfolio it is likely that at least some of your individual holdings are down from their most recent highs. It may sound strange, but in a well-diversified portfolio, you should have at least some stocks that are trading down from their 52-week highs. Otherwise, it is likely not very diversified! This is because not all stocks participate in the market to the same degree or at the same time. Currently, within the S&P 1500, which includes large cap, mid cap, and small cap stocks, that is exactly what we are seeing.
The first chart below shows the average percentage that stocks in the S&P 500 (large cap), S&P 400 (mid cap), and S&P 600 (small cap) are trading from their respective 52-week highs. In the S&P 500, the average stock is trading down 10.2% from its 52-week highs, while in the small cap S&P 600, the average stock is down 19.8%. Overall, stocks in the S&P 1500 are down an average of 15.2% from their one-year highs. It is common for small cap stocks to be trading further from their 52-week highs than large caps, but we would be the first to admit that an average decline of 19.8% is pretty high. That’s close to bear market territory for the average small cap stock! In fact, of the 600 stocks in the S&P 600 Small Cap Index, 37% (223) are down more than 20% from their 52-week highs. The average decline of 10.2% in the S&P 500, however, is actually pretty normal for an environment like the present.
Looking at individual sectors, the main sector dragging down the averages is Energy, where the average stock in the sector is trading down 36% from its 52-week high. Behind Energy, Telecom Services is next at -22.3%, followed by Consumer Discretionary (-20.3%), where brick and mortar retail stocks are weighing on things significantly. Sectors where the average stock is down the least from their 52-week highs are Utilities (-3.7%) and Financials (-10.0%). That 3.7% reading in the Utilities sector is extremely strong, especially at a time when the market is in rally mode and defensive sectors like Utilities typically underperform on a relative basis.
The final chart below breaks out the average decline from 52-week highs by sector and market cap. Here you can see how the weakness in the Energy sector is really confined to its mid and small cap stocks. While the average large cap Energy sector stock is down 24% from its 52-week high, mid cap stocks in the sector are down an average of 40.1%, and small cap stocks are down 46%! The only other segment where stocks are down more from their 52-week highs is Mid Cap Telecom Services (-47%), but that group only contains two stocks (Frontier-FTR and Telephone and Data Systems-TDS). In terms of segments holding up the best, all three market cap ranges of the Utility sector are currently within 5% of their respective 52-week highs. Outside of Utilities, the only other segment that is within 5% of a 52-week high is Financials.