Although U.S. equity indices are hovering near all-time highs, the average stock in the Russell 3000- which covers 98% of the investable market- is already in “bear market” territory.
How can it be that the average stock is down 20% from its 52-week high while the index is just 2.9% from its all-time high? There are a handful of stocks leading the market, which actually usually happens. From 1926, the average annual return for all U.S. stocks is 9.9%. Excluding the top 10% of performers each year, the return drops to 6.5%. Excluding the top 25% of performers each year and the average annual return is gone, -0.3%.
So where does this leave us today?
Does the fact that the average stock is already in a bear market mean the indices have to catch up and move lower? Or perhaps, despite being less than 3% off all-time highs, most of the damage has already occurred and stocks have some catching up to do, pushing indices higher. You can look at all the data you want but at the end of the day, this is all conjecture. To quote the great Eddy Elfenbein, “the market is controlled by the market.”