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UPDATE: Market Valuation Analysis – 03/23/2020 Data

Derek Bergen, CFA and John Holt, CFA

Prior to last week, Applied Finance had compiled market return analysis on the initial sell-off in equity markets related to the impact of COVID-19 on the economy.  By the beginning of last week, many local governments began mandating stay in place policies, effectively shuttering many service-related small businesses.  At the same time, energy stocks were significantly impacted by news of a sudden price war between Saudi Arabia and Russia.

The uncertainty of the timeline for a “return to normalcy” has created liquidity concerns across practically all economic sectors. Companies of all sizes and levels of financial strength are drawing on open lines of credit to weather worst case scenario contagion estimates.  Commercial landlords will likely see missed rent payments with little demand to lease shuttered storefronts, while rising unemployment may lead to a spike in residential mortgage and rental delinquencies; this has clearly impacted the recent performance of financial stocks, REITs and mortgage insurers.

It is a difficult moment to find optimism.  Market volatility will likely continue until clear evidence exists that new cases begin to slow or medical breakthroughs provide clear benefits in testing, treatment, and vaccination.  The economic uncertainty created by this pandemic has already put many Americans out of work with active fears that these job losses will compound in additional rounds of corporate layoffs and liquidity crises despite massive stimulus and Fed intervention.  At the same time, we are improving the dataset to understand the virus daily, a vast majority of Americans are willing to practice social distancing to flatten the transmission curve, and public and private leaders have been working diligently to narrow the gap on hospital capacity, protective equipment, and ventilators that would be required in worst case projections.  So much has changed in the last week; we are not close to being out of the woods yet, but optimism can be found in the decisive actions that we are taking and massive resources we are investing to combat the pandemic.  Better days are coming, regardless of how hard that might be to wrap our heads around that right now.

To continue to help our clients navigate the economic impacts of the pandemic, we have updated market performance data from the previous write-up to include last week’s historic sell-off.  As before, we present this data with limited commentary until the next quarterly write-up, but we would like to highlight a few primary observations.

Recent Performance Observations

  • The largest 100 stocks in the US (as of 12/31/19) have drastically outperformed remaining US stocks YTD by nearly 11% on a cap-weighted basis, and this trend continued last week with 3% megacap outperformance.
  • Normalized Percent to Target Median levels continue to exceed the +1.5 standard deviation levels in the S&P 500, Russell 1000 and Russell 2000.
  • REITs, Financials and Energy stocks have been biggest laggards since 3/13. Communication, Discretionary, and Staples outperformed overall market.
  • Growth (based on MVIC) has continued to outperform Value.
  • Stocks with poor valuation and price momentum characteristics have drastically outperformed over the last week on an equal-weighted basis. Cap-weighted trends for valuation and price momentum are less clear.
  • 3%+ yield stocks have underperformed no/low yield peers by almost 10% last week, again due to the significant drops in higher yield Financial, REIT and Energy stocks.
  • Highly leveraged stocks have underperformed low leveraged peers by another 700 bps on a cap-weighted basis from 3/13 to 3/23.

Top 100 US Stocks by Market Cap (within Russell 3000)

AFG Research Database – Russell 3000 Size Analysis: AFG Data as of 3/23/20.
Market Cap and Market Weight data based on Market Cap data as of 12/31/19 & 3/13/20

In addition to the significant underperformance of high yield stocks and highly leveraged firms that we highlighted in the previous write-up, there is a significant YTD performance gap between the largest 100 stocks and all other firms in the US stock market.  The 100 largest stocks reflected roughly 55% of the total Russell 3000 by market cap as of 12/31/19, and these stocks have sold-off by 26.5% on a cap-weighted basis compared to 37.4% for all other firms.

The top 100 stocks and the YTD performance of each is highlighted in the table below.  These stocks have been buoyed by AAPL, MSFT, GOOGL, AMZN, and FB due to their significant benchmark weights, as well as strong relative performance from WMT, ADBE, NFLX, COST, LLY, GILD, TSLA, and TMUS (if we ignore the excessive volatility of TSLA since year-end).  Large banks, energy stocks, and Boeing tend to define the significant laggards of this megacap group.

AFG Research Database – Top 100 US Stocks by 12/31/19 Market Cap: AFG Data as of 3/23/20.  YTD Returns are 12/31/19 to 3/23/20

S&P 500 – Percent to Target Median Levels

S&P 500 Analysis

S&P 500 Sector Analysis

Russell 1000 – Percent to Target Median Levels

Russell 1000 Analysis

Russell 1000 Sector Analysis


Russell 2000 – Percent to Target Median Levels

Russell 2000 Analysis

Russell 2000 Sector Analysis

US Style & Factor Analysis – 2020 YTD (Russell 3000)

AFG Research Database – Russell 3000 Style & Factor Analysis: AFG Data as of 3/23/20.  Market Cap and Market Weight data based on Market Cap data as of 12/31/19 & 3/13/20

US Industry Analysis – 2020 YTD (Russell 3000)

AFG Research Database – Russell 3000 Industry Analysis: AFG Data as of 12/31/19.  Market Cap and Market Weight data based on Market Cap data as of 12/31/19 and 3/13/20.  Best performing industries returned greater than -20.4% on a market-cap weighted basis from 3/13 to 3/23.

US Industry Analysis – 2020 YTD (Russell 3000)

AFG Research Database – Russell 3000 Industry Analysis: AFG Data as of 12/31/19.  Market Cap and Market Weight data based on Market Cap data as of 12/31/19 and 3/13/20.  Worst performing industries returned less than -20.4% on a market-cap weighted basis from 3/13 to 3/23.


  • Intrinsic Value – The cash flows implied by fading Economic Margins and diminishing capital growth over each firm’s Competitive Advantage Period can then be discounted to a present value estimate of a firm’s enterprise value. Debt and other obligations with superiority to common equity holders can be subtracted to estimate the intrinsic value of a firm’s equity, and this can be divided by current shares outstanding to estimate the firm’s stock price…. more
  • Percent to Target – Current – Compares the intrinsic value estimate to the most recent closing price for each firm.


  • Derek Bergen, CFA – Applied Finance Partner  Joined Applied Finance, 2005. Portfolio Manager and Quantitative Research Analyst. B.S. University of Wisconsin-Madison.

  • John Holt, CFA joined Applied Finance in 2014 and is involved in the management of both quantitative strategies and analyst driven strategies.


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