Joomla\Registry\Registry Object ( [data:protected] => stdClass Object ( [article_layout] => _:default [show_title] => 0 [link_titles] => 0 [show_intro] => 0 [info_block_position] => 0 [info_block_show_title] => 0 [show_category] => 0 [link_category] => 1 [show_parent_category] => 0 [link_parent_category] => 0 [show_associations] => 0 [flags] => 1 [show_author] => 0 [link_author] => 0 [show_create_date] => 0 [show_modify_date] => 0 [show_publish_date] => 0 [show_item_navigation] => 0 [show_vote] => 0 [show_readmore] => 1 [show_readmore_title] => 0 [readmore_limit] => 100 [show_tags] => 0 [show_icons] => 0 [show_print_icon] => 0 [show_email_icon] => 0 [show_hits] => 0 [show_noauth] => 0 [urls_position] => 0 [captcha] => [show_publishing_options] => 1 [show_article_options] => 1 [save_history] => 1 [history_limit] => 10 [show_urls_images_frontend] => 0 [show_urls_images_backend] => 1 [targeta] => 0 [targetb] => 0 [targetc] => 0 [float_intro] => left [float_fulltext] => left [category_layout] => _:blog [show_category_heading_title_text] => 0 [show_category_title] => 1 [show_description] => 0 [show_description_image] => 0 [maxLevel] => -1 [show_empty_categories] => 0 [show_no_articles] => 1 [show_subcat_desc] => 0 [show_cat_num_articles] => 0 [show_cat_tags] => 0 [show_base_description] => 1 [maxLevelcat] => -1 [show_empty_categories_cat] => 0 [show_subcat_desc_cat] => 0 [show_cat_num_articles_cat] => 0 [num_leading_articles] => 99 [num_intro_articles] => 0 [num_columns] => 1 [num_links] => 0 [multi_column_order] => 0 [show_subcategory_content] => 0 [show_pagination_limit] => 0 [filter_field] => hide [show_headings] => 0 [list_show_date] => 0 [date_format] => [list_show_hits] => 0 [list_show_author] => 0 [orderby_pri] => order [orderby_sec] => order [order_date] => published [show_pagination] => 0 [show_pagination_results] => 0 [show_featured] => show [show_feed_link] => 0 [feed_summary] => 1 [feed_show_readmore] => 0 [sef_advanced] => 1 [sef_ids] => 1 [custom_fields_enable] => 0 [sef_advanced_link] => 1 [show_page_heading] => 0 [menu_text] => 1 [menu_show] => 1 [secure] => 0 [page_title] => MARKETS ARE NOT A PERPETUAL MOTION MACHINE: A PERSPECTIVE [page_description] => [page_rights] => [robots] => [access-view] => 1 ) [initialized:protected] => 1 [separator] => . )




September 4, 2020

Despite a blistering upward trend in the  S&P 5001 since its March 23rd bottom (up 60.0%), the market demonstrated a disappointing reversal on September 3rd, falling 3.5%. However, if an investor deconstructs recent market performance, then it becomes clear that the market is not really the monolithic entity which pundits report upon daily, if not hourly.

More specifically, the S&P 500 is constructed of 11 sectors, and the relative performance of each sector shows a wide disparity in their 2020 returns. As shown in the graphic below, just 3 sectors, i.e. Communications Services, Consumer Discretionary and Information Technology, have driven the bulk of recent market returns. Yes, despite the hoarding of paper products, the Consumer Staples sector has had a relatively mild level of performance. And, despite the complexity of the pandemic, the Healthcare sector has only slightly exceeded 5% in its year-to-date return.

Source: Oppenheimer as of 8/28/2020

In reality, just 6 stocks, the so-called FAANGMs2  (Facebook, Apple, Amazon, Netflix, Google and Microsoft) appear to have driven the majority of the overall market’s post-March returns.  These stocks have a total market capitalization of ~ $7.8 trillion (Apple alone is ~ $2 trillion), and they comprise ~ 27% of the total market value of the entire S&P 500—yes, ~ 27%. These 3 sectors are even more concentrated than the other 8: Apple and Microsoft comprise ~ 47% of the value of the Information Technology sector; Facebook, Google and Netflix comprise ~ 68% of the Communication Services sector; and Amazon alone comprises ~ 52% of the Consumer Discretionary sector. 3

As shown in the table below, the relative returns of these 6 stocks since March have, with the exception of Netflix, significantly driven the S&P 500 to its current level. Yesterday, however, the market decided to take a second look at the near- and long-term potential performance of these 6—as well as many other—stocks. Their performance yesterday suggests that the market’s concern is about their current valuations and their level of future earnings, as shown in the table below:


Company Post-March
Return (%)
September 3rd
Return (%)
Price/Earnings Ratio
Facebook 105 -3.8 39
Amazon 85 -4.6 136
Apple 135 -8.0 40
Netflix 55 -4.9 98
Google 65 -5.0 39
Microsoft 70 -6.2 40
S&P 500 60 -3.5 30

Source: Charles Schwab & Company 9/3/2020

A central tenet of long-term investing, such as for retirement planning, is that the role and value of portfolio diversification is paramount. Instead, as many market investors, both institutional and retail, have continued to chase just these 6 stocks, their level of concentration risk kept rising rapidly until the market abruptly questioned their strategy. Going forward, it remains to be seen if just a handful of stocks can continue representing such a staggering proportion of the entire S&P 500 and its total return.

Another potential contributor to the uncertainty driving yesterday’s market performance is the looming election. More specifically, issues such as tax policies, trade strategies, regulatory initiatives, unemployment support and the pace of economic recovery may not be resolved until after the election. However, rather than opine on its potential outcome, The Mather Group would like to provide some historical perspective about the apparent linkage between national elections and market outcomes.

As shown in the table below, there have been 18 Presidential elections since 1948. 16 of these elections resulted in a positive market return in the year of the election. The loss in 2000 may be attributed to the so-called “Dot-Com Bubble”, while the 2008 market downturn may be attributed to the beginning of the Great Recession. Overall, the average annual return for a Presidential election year, even with these two market downturns, has been 10.0%.


Average Annual Return (%) for a Presidential Election Year
1948      5.5 1968    11.1 1988    16.8 2008    -37.0
1952     18.4 1972    19.0 1992    7.6 2012    16.0
1956      6.6 1976    23.8 1996    23.0 2016    12.0
1960      0.5 1980    32.4 2000    -9.1  
1964     16.5 1984    6.3 2004    10.9 Avg 10.0

  Source: Wall Street Journal

It is important to note two uncertainties with respect to evaluating these historical returns. First, past performance does not predict future returns. Second, the overlay of the global pandemic provides a factor wholly absent in all past Presidential elections. This source of major uncertainty may drive continuing market volatility until the election has been resolved, or even afterward. The Mather Group will continue to utilize its risk management tools and skills to confront this volatility, of course, as it occurs.

Market reversals, even if short-lived, are often stressful. However, like elections, they are, hopefully, transitory in their nature. Thus, it is important to remain focused on your long-term goals, both personal and financial, and assure that your financial plan remains congruent with and supportive of your goals. It is a living document, and the professionals at The Mather Group welcome every opportunity to help you remain confident that your financial plan stays on course. If you have further questions or ideas, please do not hesitate to reach out to a member of The Mather Group’s professional team.


The Mather Group (TMG) is registered under the Investment Advisers Act of 1940 as a Registered Investment Adviser with the Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply a certain level of skill or training.  The opinions expressed, and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. The opinions and advice expressed in this communication are based on The Mather Group’s research and professional experience and are expressed as of the publishing date of this communication. The Mather Group makes no warranty or representation, express or implied, nor does The Mather Group accept any liability, with respect to the information and data set forth herein. The Mather Group specifically disclaims any duty to update any of the information and data contained in this communication. The information and data in this communication does not constitute legal, tax, accounting, investment, or other professional advice nor is it intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client's financial situation.

Indices & Citations:

1 S&P 500 Index consists of approximately 500 stocks chosen for market size, liquidity and industry group representation, among other factors by the S&P Index Committee, which is a team of analysts and economists at Standard and Poor's. The S&P 500 is a market-value weighted index, which means each stock’s weight in the index is proportionate to its market value and is designed to be a leading indicator of U.S. equities, and meant to reflect the risk/return characteristics of the large cap universe.

2 FAANGM is an acronym that refers to the stocks of six prominent American technology companies: Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), Alphabet – formerly known as Google (GOOG); and Microsoft (MSFT).

3 Yardeni Research, Inc. -- S&P 500 sector concentration and market-cap --




The Mather Group



Get in touch with us or find one of our office locations   Contact us