Deconstructing Market Returns

Abstract

The author discusses the practice of attributing returns on the S&P 500 index to a few stocks and concludes that the conclusions suggested by such an analysis can be faulty and misleading. He first looks at the number of stocks needed to replicate the returns of the index in 1999 and year-to-date in 2000, and suggests that the analysis has been used to argue that, in 2000, the equity market has become more narrowly focused on growth. He suggests that the data in fact do not support this contention, arguing in fact that the U.S. equity market in 2000 has become more broadly based and less focused on growth.