With 2021 in the books, TheStreet’s James “Rev Shark” Deporre took a look back at the stock market for the year.
What he saw was a volatile market that “had a rough go of it” in 2021, although it was a good market for mega-stocks.
“We’ll soon be seeing numerous news stories about how the stock market had a fantastic year,” Deporre wrote recently in Real Money. “These stories will cite a 30% gain in the S&P 500 and the Nasdaq 100 and a 20% gain in the DJIA. Stocks such as Apple AAPL, which is up around 40%, will be offered as examples of what a fine year it has been.”
Indeed, “these sorts of returns are great news for portfolios that are tied to the performance of big-caps and the senior indexes,” he added. “Many retirement and 401(k) accounts have allocation options that benefited greatly from this strong performance.”
That’s not the whole story, however.
The big story this year isn’t how well the indexes have performed — it’s how much they failed to reflect what was really going on in the broader market. “Just 10 stocks are around 30% of the weight of the S&P 500, and 25 stocks are close to half. These stocks did well, and therefore the indexes did very well,” Deporre said. “The indexes are essentially a specific asset class of very large-cap stocks, and that asset class had a very good year. If we dig deeper, though, the picture is not quite as attractive.”
One of the easiest ways to see how the indexes have overstated the performance of the broader market is to look at returns produced by U.S. equity funds.
“According to TheStreet, close to 85% were trailing the S&P 500 as of the end of November, and that had probably declined in December when secondary stocks were hit hard once again,” Rev Shark said.
Another illustration of how poor the market has been for stocks other than mega-caps is that nearly 60% of all stocks are below their 200-day simple moving average of price.
“The generally accepted definition of a bear market is when a stock is 20% below its highs,” Deporre noted. “Currently, 3,616 stocks out of a total of 8,433 are in a bear market. That is 42.9% of all stocks, yet the indexes are currently close to all-time highs.”
For the majority of stocks, the market topped in February and has fallen into bear markets over the last nine months. “A frenzy of social media trading marked the February top when stocks such as GameStop (GME) and AMC Entertainment (AMC) were pushed higher due in part to short-squeezes as well as the coordinated traders on Reddit and in Discord chat rooms,” Deporre added.
These traders continued to aggressively push various trades, mostly in small-caps and thinly traded stocks, but the ability to create sustained movement quickly diminished, and those that had been promoting the holding of stocks with “diamond hands” eventually gave up.
“The broader market had a very tough go of it in 2021, but you would not know it unless you did some digging,” Deporre said.
This article was originally published by TheStreet.