Tide lifts fewer boats as year-end nears

As of Dec. 19, the S&P 500 index was up 28.5% year-to-date with a median holding return of 27%. A good year, particularly given May's 6.6% decline and August's 1.8% decline. But as the end of the year neared, it became more evident that the tide wasn't raising all the boats. Following a disastrous fourth quarter in 2018, the index rebounded with a median stock return of about 14%. While that number would grow, so would the dispersion of the index constituents.

At the end of March, the cross-sectional standard deviation was 12%, of that about 68% of the index positions would fall within 12 percentage points of the mean, 14.6% in this case. Fast-forward to December and that number doubles to 24.4%.

Additionally, the 100 largest constituents returned on average just less than three times the 100 smallest, 29.3% vs. 10.5%. How active managers took advantage of this environment will be interesting to see after year's end. Logic would assume that the ability to overweight or underweight segments of the market would give them an advantage over the index.