Chart of the Week: Share prices down, index up? It’s magic!

Fri 10 Nov 2017

By Brian Dennehy

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If most company share prices are going down, shouldn't the stock market index be going down too? We take a look.

volatilityA healthy stock market is one where most components are moving ahead.  An unhealthy market, frequently moving towards a peak, is when only a small number of stocks are hitting new highs.
 
Unfortunately, because the major stock market indices weight the underlying components (the quoted companies) based on their total value (their capitalisation), the index can keep going up even though most companies are heading down. 
 
This is happening now, as is illustrated in the chart below, comparing the S&P 500 with the same index BUT where each company is equally weighted. 
 
Now that's food for thought.
 
Source: Andrew Thrasher.
Chart of the Week - 10 November 2017

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