S&P 500 — What happened in 2022?
The year 2022 has been one of the most volatile periods in financial markets. S&P 500 lost 18% of its value. Historically S&P declined more than 12% a few times in past years going back since 1931. The below graph describes the years when S&P declined more than 12%. Easy money which fueled the market during covid came crashing in 2022. This crash will continue or not only time will tell. With the FED determined to keep the rate increase, corporate margins under pressure, and talks of recession, 2023 will be a challenging year.
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Along with years, I have put the figures when on a given trading day S&P declined more than 8%. Follow this link in case the below image is not visible.
What is S&P? It stands for Standard & Poor. The origin of the S&P 500 goes back to 1923 when Standard & Poor’s introduced a series of indices that included 233 companies and covered 26 industries. The S&P 500, as it is now known, was introduced in 1957. The S&P 500 is regarded as a proxy for the U.S. equity market and is the only stock market benchmark serving as an economic indicator.
S&P 500 Index Construction
The index is not consisting of exactly 500 companies. As of Dec 2022, the index consists of 503 companies. For Example, Google consists of class A & C shares as:
GOOGL Alphabet Inc. Class A
GOOG Alphabet Inc. Class C
Below pie chart display the number of stocks within each sector. As you can see information technology has a higher number (76) of stocks Vs energy lowest (23). Read further for sector definition.
S&P Indices identifies important industries within the U.S. equity market, approximates the relative weight of these industries in market capitalization, and then allocates a representative sample of stocks within each industry to the S&P 500. There are 11 sectors according to the Global Industry Classification Standard (GICS®)*: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Communication Services, Real Estate, and Utilities.
As you can see the Information Technology sector has the highest weighting and Real estate with the lowest.
The S&P only uses free-floating shares when calculating market cap, meaning the shares that the public can trade. The S&P adjusts each company’s market cap to compensate for new share issues or company mergers. The value of the index is calculated by totaling the adjusted market caps of each company and dividing the result by a divisor. The divisor is proprietary information of the S&P and is not released to the public.
Here is the list of the top 10 companies within S&P with the highest market cap. Figures are in Trillions. You can see how information technology companies have the bulk share.
Stocks with S&P are traded within different exchanges. The number of stocks having the highest market cap belongs to technology. One would assume the higher number of stocks will belong to the Nasdaq exchange, but the NYSE exchange comprises higher numbers within S&P.
The below graph describes each sector's performance in 2022. Barring the Energy sector's stealth return all sectors ended downward with Communication Services hardest hit down at 40.42%.
Let’s dive into some of the other 2022 Stats.
S&P 500 each month return: Apr, June & Sep were the worst decliners. July summer rally brought one hope, but there was a downhill for the next two months.
Top 10 stocks with the highest return in 2022
Most of the high-performing stocks belong to the Energy sector. Returns are in %.
Top 10 stocks with the worst return in 2022
With S&P significantly down historically decline is across the sectors. High-flying stocks from 2020–2021 like TESLA, PayPal, and META went down significantly.
Thanks to the democratization of data that makes it easy to slice & dice. I prepared the above graphs by consuming data in the R programming language & Highcharter package.
I will like to hear your honest feedback. Leave your comments on the article.
Disclaimer: Some of the above writeups are borrowed from the sites S&P, and Investopedia.
