It’s A Stock-Picker’s Market, Says Goldman

It’s A Stock-Picker’s Market, Says Goldman
Jonathan Hobbs

9 months ago1 min

For the past 15 years, passive investing has been a winning strategy, with investors being handsomely rewarded for simply buying and holding the S&P 500 index. But the Federal Reserve’s been raising interest rates and generally reining in its other stimulus, and some companies are able to weather those conditions better than others. So now, good stock-picking is back in vogue.

This chart from Goldman Sachs takes the monthly volatility of the average stock in the S&P 500 and divides that number by the monthly volatility of the index. That gives us the purple line, which has been hitting higher highs since early last year and right now sits at about 1.8 times. That means the average stock in the index has recently been moving almost twice as much per month as the index itself. That’s pretty unusual: as you can see, the indicator spiked briefly to these levels last August but then quickly dropped back down. However, this time around, it’s been holding steady at these heights – which could suggest it’s got some staying power here.

Keep in mind that volatility says nothing about direction. So both the upward and downward moves of single stocks can be heftier than usual against the index. So the next time you see a bigger drop in the overall index, you might see an even bigger drop in your favorite stock. And that could be a good opportunity to buy it.



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