Last night, I disagreed with Larry about the meaning of earnings and the relative importance of energy and commodities.
Instead of abstracts, lets look a closer look at some hard data, via the WSJ’s David Gaffen. He points out some rather intriguing data points regarding the SPX and the relative contributions of its various sectors in terms of performance:
"Thanks to rising oil and gasoline prices, energy
stocks have had a lot to do with the performance of major stock indexes
in 2006 — a disproportionate amount when compared with their
representation in the S&P 500.
Through the end of March, the
S&P 500 returned 3.73%, and energy’s contribution to returns was
21.1% of that, greater than any of the other S&P sectors.
closest was industrials, which contributed 19.5% of the S&P’s
returns through March. Here’s the difference between the two, though:
with just 30 issues, energy accounts for just 6% of the 500 companies
in the S&P’s key measure, compared with 53 industrial names, making
up 10.6% of the index.
The difference between the combined market
capitalizations is narrower as a result of the strength in energy
stocks — at the end of March, the energy sector comprised 9.9% of the
S&P’s market value, compared with 11.6% for the industrial sector.
Without energy, the index would have gained just 3.2% [versus 3.713%] so far this year."
You can interpret what the message of the rally is, but consider this much: Energy continues to have a hugely disproportionate impact on both earnings and market performance.
Also worth checking out: Mark Hulbert explains why Crude oil and stocks can’t keep on rising in tandem. (Something’s got to give)
David A. Gaffen
WSJ, April 19, 2006 9:46 a.m.