Market breadth: Outperforming the index

What are Outperforming the index metrics?

Outperforming the index metrics are market breadth indicators. They show how many stocks in a group are doing better than their benchmark index, and how the average stock compares with that benchmark.

Most major indices are weighted by market capitalization, so the largest companies have the greatest influence on index levels. An index can post a strong return even if most of its stocks lag behind, as long as a few giant companies perform well. These metrics reveal whether an index's performance reflects the market as a whole or just a handful of heavyweights.

These metrics are calculated for two kinds of stock groups:

• Indices: all constituents of an index, such as the S&P 500 or the Nasdaq 100. The benchmark is the index itself.
• Countries: all stocks listed in a given country's market. The benchmark is the single most representative index for that country.

In the formulas below, constituents means every stock in the selected index or country, and benchmark means the index or the country's benchmark index.

Why they matter to investors?

• They show how concentrated returns are. If only a small share of stocks beats the benchmark, a few large companies are driving performance. If most stocks beat it, gains are widely shared.
• They help with stock selection. When many stocks outperform the benchmark, an actively chosen portfolio has better odds of beating the index. When few do, picking winners becomes harder, and holding the largest names or the index itself has been the more rewarding approach.
• They reveal risk. A market that depends on a few leaders is more vulnerable: if those leaders stumble, there is little support from the rest of the market.
• They allow comparisons across markets. The metrics are percentages and percentage-point differences, so you can compare indices and countries of any size.

Fields and formulas

All metrics are based on Price Performance: the percentage change in price over the period.

The list of metrics:

• Outperforming the index over 1 month (%) = number of stocks with Price Performance 1M > Benchmark Price Performance 1M / number of constituents × 100
• Outperforming the index over 3 months (%) = number of stocks with Price Performance 3M > Benchmark Price Performance 3M / number of constituents × 100
• Equal-weight vs {benchmark}, 1 month = average Price Performance 1M of all constituents − Benchmark Price Performance 1M