By John Prestbo – 02/04/2014
After a serenely munificent 2013, the market abruptly turned rough this year. Among many things, investors are worried about the strength of continued economic recovery in the United States and globally. If the market has your nerves on edge, you may take comfort in how the Barron’s 400 Index has comported itself following previous swoons.
For our study, we tracked the index since its public debut in August 2007. (No backtested data here!) Since then, the Barron’s 400 has racked up 160 52-week highs. From those peaks, we measured any declines of at least 5% that occurred within 45 days—conditions roughly comparable to what we have experienced so far this year.
You’ll probably not be surprised to learn that 5% drops didn’t follow 74% of those 52-week highs, at least not within 45 days. In that category is all of 2013, in which the Barron’s 400 set 68 new 52-week highs, ending with one on Dec. 31. But now we’re concerned with the other 26%. How did things work out afterwards?
Well, you will be relieved to know. Even 30 days following such declines the Barron’s 400 had rebounded an average 1.8%. When one full year had elapsed, that average recovery was up to 22%. Here is a table summarizing our findings.
| Days to Decline |
Subsequent Index Performance (%) | |||||
| Decline | 30 Days | 90 Days | 180 Days | 1 Year | ||
| Average | -5.82% | 25.53 | 1.84 | 3.36 | 6.00 | 21.93 |
| Median | -5.78% | 24.50 | 3.46 | 1.68 | 7.06 | 27.08 |
Of course, history doesn’t repeat itself exactly, so this data doesn’t constitute a forecast. It’s interesting to note that the worst subsequent performance of the Barron’s 400 occurred in the 90 days following 52-week highs set in late April 2011. That time, the index sank 10.5%, though as you know it later recovered.
The 2007-09 bear market doesn’t show up in this study because the index didn’t set new 52-week highs within 45 days preceding the first 5% of that collapse. For the record, the Barron’s 400 sank 42.3% from Oct. 9, 2007, to March 20, 2009.
Nobody knows what we are in for this time around. The winter storms buffeting the market may develop into a full-blown correction and conceivably worse if panic sets in. But the Barron’s 400 has demonstrated remarkable resilience in the past and for good reason. When buyers once again dominate, shares of battered but financially strong companies will be the starting point for a new rally.
B400 Sector Performance This Year Has One Big Surprise
By John Prestbo – 02/06/2014
Whether the market is going up or down, its various pieces are leading or lagging the overall trend—and sometimes are even going in the opposite direction.
Such is the case again now, as the 2014 stock market rocks and rolls through a rough patch. Through Feb. 4, the Barron’s 400 Index is down 6% compared to a 4.8% retreat for the Dow Jones U.S. Total Stock Market Index. That’s neither surprising nor alarming, since the Barron’s 400 is equally weighted while its benchmark is weighted by market capitalization.
Sectors within the Barron’s 400 are, of course, doing their own thing. Some are leading the downturn, such as consumer staples. Others are lagging, such as utilities. And one is actually rising! Here is a table with this year’s price action through Feb. 4.
| 2014 Slump to 2/4 | ||
| Average | Median | |
| Consumer Discretionary | -8.82% | -9.46% |
| Consumer Staples | -10.58% | -9.21% |
| Energy | -5.90% | -6.48% |
| Financials | -8.52% | -7.02% |
| Health Care | 1.16% | 1.36% |
| Industrials | -6.23% | -6.49% |
| Materials | -4.92% | -4.23% |
| Technology | -6.89% | -6.88% |
| Utilities | -2.76% | -3.95% |
Who would have thought that health care, with all the troubles of rolling out ObamaCare, would be the sole exception to the market slump? The push is coming from specialized pharmaceutical companies, while health insurance and hospital management are indeed struggling. Here are the top health-care performers in the Barron’s 400 so far this year:
| Myriad Genetics Inc. | 31.89% |
| Questcor Pharmaceuticals Inc. | 20.20% |
| Auxilium Pharmaceuticals Inc. | 19.38% |
| Alexion Pharmaceuticals Inc. | 16.56% |
| Repligen Corp. | 14.39% |
They aren’t alone. Of the 33 health care companies in the index, the stocks of 20 are in positive territory. That’s not enough to compensate for the overall market skid, of course, but it reminds us that digging beneath the surface often reveals something interesting.
