and the entire Nasdaq index was only up 39.6%. The top 10 stocks, basically, have contributed 1.6 times the return of the entire almost 5,000-stock Nasdaq index.
The top 25 stocks in the S&P 500 contributed a return of almost 25%, while the total S&P index returned 28.6%. Microsoft represents 3.5% of the index, and contributed almost 4% of the total S&P 500 1998 return. The top 25 stocks represented almost 80% of the return of the entire 500 stock index. The top 50 stocks represented over 100% of the gain. This means that the remaining 450 stocks had little impact on the performance of the index.
I think this will have to correct itself. The median stock in the S&P 500 was up 7%. The average equity mutual fund was up less than 15%. So, while this has been a great bull market that everyone has felt good about, with strong consumer sentiment and the stock market going up every day, investors are puzzled by the relatively poor performance of their own portfolio when compared to the major index.
I believe that most stocks experienced a bear market in 1998. Before we can start a new bull market, I would expect a correction in the 50 largest stocks in the indices that have been the drivers of performance over the past several years. This I expect to occur sometime in late 1999 or early 2000.
C. KIM GOODWIN: The demand for equities has just been incredible and frankly, if you want to stay ahead of inflation, even if you just look at the 10% a year annualized returns-if you don’t get 20% to 30%-the equity market is still a good place to be.
S&P operating profits were flat in 1998; yet, we got this significant return in the broader market. I think for this year, the estimates for operating profits are low. I actually think that S&P operating profits could be up 5%. Even if you just looked at the Dow components, even though it’s a different index, you could see that a third of the Dow components could actually grow double digits in 1999. They are mainly technology, telecommunications, pharmaceutical stocks, retailers and some restructuring stories. We think that there is an upside potential for positive earnings surprises in those industries.
STEVEN SINGLETON: I would probably say that technology continues to be the driver. I think all the concern is warranted about valuation levels in the marketplace and the economic environment, but where we are today, what I like to call the global information technology age, is shaping the new millennium as much as the industrial age shaped the dawn of the 20th century. When you look at that, the types of companies that lead us into that technology charge are continuing to grow, even amidst the concerns of Asia and Brazil. It becomes a bit disconcerting for the older investor who has seen similar things before. They look at these valuations. They say, “My God, this thing has got to come down,”