By Rocky White
Tech stocks have been slammed recently, resulting in the tech-heavy Nasdaq Composite trailing both the S&P 500 Index and the Dow Jones Industrial Average. The Nasdaq is down 1.9% in 2014, while the S&P 500 is leading those major indexes, up right around 0.9% on the year.
Let's take a look to see if the broader equities market tends toward outperformance or underperformance through the rest of the year, depending on which of the major indexes are outperforming or underperforming at this point in the calendar.
Below is how the indexes have performed over the past 40 years from mid-April through the rest of the year. In the rest of the article, I'll slice and dice the returns depending on the performance of the indexes vs. each other.
Nasdaq Trails: First, I looked at years when the Nasdaq trailed the other two indexes. The performance summary for the rest of the year is below. The results lag the overall returns in the table above. In other words, when investors have least preferred the tech-heavy Nasdaq, then it has been a bad omen for stocks going forward. However, the margin of underperformance is not that alarming.
The major indexes aren't very strong this year. The Nasdaq and the Dow are both negative, while the S&P 500 is up less than 1%. Therefore, I broke it down a little further. The table below shows the performance of each during years where the Nasdaq trails the other two and is negative. This distinction eliminates only two years from the table above. However, it gets rid of last year, in which the Nasdaq underperformed but was positive. Stocks performed very well last year from April to the end of the year. Therefore, the average return worsened quite a bit in the table below.
S&P 500 Leads: As I mentioned earlier, the S&P 500 currently leads the three indexes. This has only happened in six of the past 40 years. Nevertheless, the returns have been very bullish in this case. In those six instances, the three indexes have averaged over double-digit gains for the rest of the year. Furthermore, the Dow has been positive for the rest of the year all six times when the S&P 500 leads the other two indexes through mid-April.
