hi i'm jimmy in this video we're looking at what's been happening with the stock
market and i'm sure we'll understand why the
stock market crashed earlier this year thanks to the coronavirus and maybe we
can even understand that the market rallied once the federal
reserve stepped in and the government stepped in and
started doing stimulus things along those lines
maybe we can understand at least some of the initial rally
but i recently heard that just a few tech stocks were ultimately
what caused this huge rally and i wanted to see if that was true
and perhaps if that is true perhaps there are some opportunities out there
for value investors in some sectors that perhaps haven't had the same rally
so that's the goal of this video and then hopefully we can use that
information to make better investment decisions and
ideally get us closer to our goal of achieving financial freedom
okay so first let's look at what has happened with the s p 500
over this past year and if we're curious on a total return basis
now total return assumes that we reinvest any dividends that we receive
back into the stock that paid that dividend so
for the s p 500 the stock market we're going to use the s p 500 as a
representation of the stock market they were about 17 for the entire year
so assuming we reinvested all those dividends
that each stock in the s p 500 paid we reinvested that
we would have made 17 from a year ago okay now that's decent
but if that would be decent in a regular year if we consider that we had the
stock market crash and then a huge recovery well suddenly
that 17 percent looks fantastic now if you're curious
during this time period here coming off of the bottom of
the stock market the blow of the s p 500 back in late march
well we're up 41 since that time okay so let's look at how this happened
and we're just looking at what stocks and what sectors did well how they
performed and which ones overall contributed to
the stock market or the s p 500 moving higher since the end of march so
i put together this table the first column here is how much each
sector represents in the entire s p 500 so we can see that information
technology represents about 20 of the entire s p 500 so that's quite
huge and the way they determine how much
weight each sector gets is how big the companies how big the
companies are within that sector we'll come to the individual companies
in a second so this next column this is a total return
for this same time period from the low to where it is today well we can see
that consumer discretionary stocks performed the best then information
technology then material stocks but
when we calculate the contribution to the total return
well now we can see that information technology stocks
made the biggest impact on the total stock market returns
this contributed 13.3 percent of the 41 that the stock market has put up since
the bottom that's more than 30 on a total return basis so of all the
returns that the stock market had since the bottom this contributed 13 so
we'll come back to this table in a second
but for now let's shift over some to some of the individual companies
so let's scroll the list of companies from the s p 500
and just like before the second column is the weight that they how much they
represent of the total uh index and we could see that microsoft
was up 45 and apple was up 97 over this time
period okay so we can see that both microsoft
and apple represent about five point seven percent
of the total fund each now these two stocks combined
contributed more than seven percent of the s p 500 performance
don't forget they were up 41 so seven percent of that 41
can be explained by just these two companies now for curious
microsoft and apple fall under the information technology sector
while facebook and alphabet fall under the communication services sector
and amazon is in the consumer discretionary sector so that helps
explain at least some of the returns for those segments now as far as
opportunities go i'm a bit surprised that health care was
only up 32 from the bottom i would have thought
that in a covid world they would have done much better than
that so it might be worth digging into some of those a bit deeper
i'm also a bit surprised by consumer staples now
these are companies that in theory people will keep buying their products
no matter how the economy does or at least still they need these products
so things like kellogg's coca-cola clorox
so there's going to be consumer staples things that most people continue to buy
no matter what their you know financial situation is
so i think we can all agree the with the fact that
the stock market is up a surprising amount right now
sure i understand the fed's involvement and big companies like these
continue to do quite well which is of course making the total stock market
look much better since the s p 500 and the dow
but the s p 500 is a big headline stock market index
but i would have thought that some of the more defensive names
uh as the stock market has moved higher would have thought that there would have
been some fear of uh stock market pullback so i thought what
are some of the defensive names would have done a
bit better either way it looks like they haven't just yet
that being said i started pulling down the price to earnings ratio or p
e ratios for as many companies as i could get my hands on
for the s p 500 so i broke down the s p 500
by sector so you could pause it if there's any companies that look
interesting to you put in anything you might think in the comments below
something we should dive deeper into now i also included i used a trailing pe
which is today's price and the past 12 months of earnings per
share and i also included a forward p e ratio
which is today's price stock price and the
expected next 12 months of earnings per share
and i did both because i figured that many companies
might have skewed numbers it's easy to look at a company that had their
earnings hit during covid and say oh my god look at how overpriced
this is good example of that is disney clearly this is a crazy high p
e ratio now i personally bought disney during
the covid crash when it first started crashing
stock dropped below 100. i personally bought it then i still own that today
if you're curious but this looks way more overvalued since earnings have been
hit with their parks being shut down and
with some of the movies movie theaters being shut down things
along those lines so as we scroll through some of these
individual sectors i also think it's important to point out
that perhaps price to earnings ratio isn't the best
eat a metric to look at in this type of situation
a good example of that is this whole real estate sector here
well we can see that these real estate sect these real estate pes
look crazy high but one of the reasons for that
is uh pes aren't actually great for reits much better for that instead of a
price to earnings ratio would be something like price to funds from
operations so if you're curious switching that one
out will run the price from funds from operations now and we can see
they look a bit more reasonable so i wouldn't take the pe ratio at face
value in that case so i do think that using pe or some
sector-specific metric is a good way to identify
potential companies to look closer at companies that we
might want to research a bit further but once we find those companies i think
it makes more sense to do an in-depth valuation
uh using more than one valuation method don't just lean on pe or even press to
funds from operations i think it makes sense to use two or
three different valuation types to get a better understanding of what
the intrinsic value of that company could truly be
and if you're interested i actually did a video where i go through some of the
more popular valuation methods and where to apply them in different
industries which industries to avoid with the different methods
things along those lines so if you're curious perhaps that could be a good
next video for you to watch i got a link right here i got a link in
the description below and thank you so much for sticking with me all the way to
the end of the video i really appreciate it thanks and i'll
see in the next video