I know none of this crap matters <g>, but I found this to be VERY interesting. From Briefing.com:
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Updated: 10-Jul-99
The Russell Indexes and Market Breadth
The final Russell 2000 Index changes were issued after the market close on July 8. The changes were published on a preliminary basis earlier in the month, and Briefing.com suggested a successful way to play the changes. However, we always look at final list because it is the first time that more detailed statistics are published, including the demarkation line between the Russell 1000 and the Russell 2000. But this year, for the first time in five years, there is a trend in the Russell Index statistics that is unsettling.
The median market capitalization numbers for the Russell 3000 and Russell 2000 indexes declined.
We will discuss what this means in a minute.
Final Lists Available
First, the final company lists for the 1999 Russell 3000, 1000, and 2000 Indexes can be viewed at:
russell.com.
Division Lines Drop
The Russell 3000 includes the top 3000 stocks on the US markets, ranking by market capitalization. The Russell 1000 is the largest 1000 companies, by market capitalization, and the Russell 2000 are companies from 1001-3000, by market capitalization. Here is a quick summary of where the lines are drawn now on the Russell boundaries.
Largest Stock - Market Cap Smallest Stock - Market Cap
Russell 1000 Microsoft (MSFT) $407.2 B Neiman-Marcus (NMG) $1.4 billion
Russell 2000 American Mgmt. Syst. (AMSY) $1.3 billion Towne Services (TWNE) $178.2 million
These numbers were somewhat shocking to us, because both the 1000/2000 line and the bottom cutoff line are actually lower than last year. This was entirely unexpected.
Last year, the largest company in the Russell 2000 Index, company number 1001 in the market, was Kelly Services (KELYA), with a market capitalization of $1.4 billion. This year the largest Russell 2000 company, American Management Systems, has a market capitalization of $1.3 billion.
And at the bottom of the Russell 2000 list, company number 3000 in the market, the market capitalization is just $178 million. Last year, company number 3000 was Andover Bancorp (ANDB), with a market cap of $221.9 million.
This is extremely surprising, and was not expected.
The Median Market Capitalization Falls
But even more surprising, and more unsettling, is the fact that the median market capitalization fell.
The median market capitalization is the stock in the middle of the overall index. Half of the stocks have market caps higher, half lower. Here are the median market capitalization numbers for the indexes for this year, compared to last year.
1998 Median Company 1999 Median Company
Russell 3000 Georgia Gulf Corp. (GGC) $793.3 million Biomatrix (BXM) $701.7 million
Russell 1000 Lexmark Intl. (LXK) $3.7 billion Crown, Cork, & Seal (CCK) $3.8 billion
Russell 2000 Andrx Corp. (ADRX) $500 million Yellow Corp. (YELL) $428.0 million
This just isn't what is supposed to be happening. The trend for the last six years has been all upward.
Here is a chart showing the median market capitalization for the past six years for all of the Russell indexes (chart can be viewed at: briefing.com , if not present.)
Here is the same data in a table. All numbers are in millions.
3000 1000 2000
1994 343 1,700 206
1995 389 1,900 232
1996 564 2,600 352
1997 639 3,000 395
1998 793 3,700 500
1999 702 3,800 428
The median market cap in the Russell 1000 index increased slightly, from $3.7 to $3.8 billion, just 3% higher, whereas in 1998, it rose 23%.
Briefing.com Conclusion
What the evidence says is straight forward: more stocks have gone down this year, than have gone up. The indexes are becoming more heavily weighted by the large caps.
But how can this be? Even the Russell 2000 Index is essentially flat, closing at 454.75 last July 1, and at 454.42 this July 1, almost exactly the same.
Market capitalization indexes, which the Russell Indexes, Standard & Poors 500, and the Nasdaq Composite all are, favor stocks with higher market capitalization. If the larger stocks in any index go up 1%, it has a greater impact on the index than when a small market capitalization stock goes up 1%.
What the median cap decline tells you is that the rise in stock prices is concentrated in the larger cap stocks. While the Russell 2000 index is flat, the smaller your stock is, the more likely it is to have shown a decline, or a rise of far less than the index.
The market is losing its breadth.
Breadth is a statistic that is easily ignored, but true bull markets have great breadth. The rising tide lifts all boats. But it didn't happen this year, for the first time in six years.
At Briefing.com, our reaction to this statistic is to begin looking at breadth more closely. If the market loses it's ability to pull all stocks along, it is an indication that is running out of steam. Today's Russell 2000 observation isn't enough, by itself, to say the market has lost its breadth, but it is certainly not encouraging. Breadth is now a statistic we will be looking much more closely.
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[Sorry for the formatting. I am too lazy to fix it. <vbg>]
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