The correlation of S&P 500 members to daily move in the benchmark overall has been steadily rising toward parity over the last 10 years, a sign that exchange-traded funds, electronic trading and a short-term mentality is slowly killing individual stock picking based on fundamentals.
“We’ve gotta ask ourselves what’s more important,” said Gary Kaminsky, former money manager for Neuberger Berman and currently contributing editor for CNBC. “Earnings or just getting into the index club?”
Birinyi Associates, the research firm founded by legendary trader Laszlo Birinyi, took the daily change of the 500 members of the index and compared them to the daily change in the index itself over a rolling 200-day period. Ten years ago, stocks moved more independently at a 0.3 correlation. Today, the correlation is approaching the 0.7 mark, which basically means that 70 percent of the time, an individual stock’s move will match the change in the overall index each day.