By Jeffrey Cohen
One small tidbit of analysis in our model is to look at the total market capitalization of all the stocks that pass data validation each day. Today, 2,992 stocks made the cut, down 3 from the day before and down 28 from 2 weeks ago as some stocks must have delisted or seen low/no volume.
The total market capitalization of stocks at market close on October 3, 2023 is $47.7 Trillion. The market capitalization on October 2, 2023 was $49.3 Trillion. Yesterday the total value of our relevant stock universe $1.6 Trillion.
$49.3127T (market cap Oct 2 close)
$47.661T (market cap Oct 3 close)
-$1.6517T (the difference a day makes)
-0.03349% (percentage difference).
We have noticed that the main US equity exchanges don't show the same size movements.
SPY down 1.34%
QQQ down 1.75%
IWM down 1.68%
This feels very important to us. The typical stock investor lost 3.35% yesterday, and the margin calls may start coming. However, the index holders are sitting safer and more secure with smaller losses. This is usually thought to be due to the power of market capitalization weighting of stock portfolios, but it could just as well be due to the lack of coverage of most stocks. The most popular, profitable and followed stocks just do better than the rest (our hypothesis).
We did run an analysis a months or so ago that showed that only investing in profitable stocks with low debt ratios avoided the edge over the S&P 500 equity index ETF, SPY, so maybe the biggest losers yesterday were in money losing companies most exposed to debt servicing costs. Time will tell.
We also look at the annual change in the stock price, adjusted for dividends, for the three major U.S. Equity Indices for the past year, and the risk-free rate of return we use for our model (typically the 3-month or 6-month US Treasury bill yield).
Riskfree rate = 5.62%
Actual SPY return = 17.14%
Use actual S&P500 rate = 17.14%
Actual IWM return = 4.05%
Use floor Russell 2000 rate = 6.00%
Actual QQQ return = 29.92%
Use ceiling NASDAQ 100 rate = 20.00%
Expected market return = 8.76%
The way you figure out the expected total return is to add up the riskfree rate and the expected market return to risk, and this comes out to 14.38% for the next year.
So, while you drink your morning coffee and get ready to start your day, think about how the totality of stocks is now worth 3.35% less than it was yesterday.
Source: Market capitalization data is provided by Intrinio, a professional market data services firm which we access using Python.
Stock Market BLOG
President and Investment Advisor Representative