Market Review May 22 2023
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April 2024

Market Review - May 22 2023


In this week's market review, our focus lies on examining the annual returns of the biggest market indices. We'll gauge the indices 2023 performance in relation to historical data. The results make for interesting reading.

You can still read last week's review here.

Nasdaq-100: Where Tech Titans Roam

The Nasdaq-100 is an index that represents the performance of the top 100 non-financial companies that are listed on the Nasdaq stock exchange. It includes technology, internet, and biotechnology companies. The index is also weighted based on the market capitalisation of each company.

The worst year for the Nasdaq-100 was also 2008, it returned -43.2%. The index bounced back in 2009, returning a stunning 54.7%. A similar trend might be playing out between 2022 and 2023. The Nasdaq-100 returned -32.6% in 2022, while this year has been the best year-to-date on record, with a 22.6% return so far.

Nasdaq-100 yearly returns

The S&P 500: Tracking America's Market

The S&P 500 is an index consisting of the 500 largest publicly traded companies in the U.S., weighted by their market capitalisation. This means that larger companies have a greater impact on the index's performance. As of May 2023, Apple and Microsoft alone account for over 14% of the index. The S&P 500 is often used as a benchmark to evaluate the performance of other stock portfolios.

Looking at the historical returns since 2006, the best year for the S&P 500 was 2013, with a remarkable return of 32.3%. Conversely, the worst year was 2008, experiencing a significant decline of -37.7%. It's worth noting that in the current year, the index has delivered a healthy return of 8%.

S&P 500 yearly returns


We've seen a decade of underperformance of smaller-cap stocks, and the trend has continued in 2023. The micro-cap stocks are down almost 5% year-to-date, underperforming the broader market by a huge extent.

Microcap stocks

David and Goliath of Stocks: Small Caps vs Large Caps

Finally, we're analysing the relative performance of the Nasdaq-100 versus U.S. micro-cap stocks. We've plotted the yearly return of the Nasdaq-100 (QQQ) denominated in micro-cap stocks (IWC). As we can see in the chart below, the Nasdaq-100 has outperformed micro-cap stocks by over 30% year-to-date. This level of outperformance was surpassed only in 2020.

Nasdaq-100 v Microcaps

Sizing Up the Opportunity

As we can see in the following chart, the Nasdaq-100 has outperformed the U.S. micro-cap stocks by a large margin since 2006. Over this timeframe, the mean outperformance of the Nasdaq-100 over micro-cap stocks is almost 9%.

QQQ vs IWC yearly

This success has triggered a substantial expansion in the Nasdaq's multiples, with investors eagerly paying a premium for it. With a weighted Price-to-Earnings (P/E) ratio of 29.6 for the Nasdaq-100, compared to the S&P 500's 21.5, and a mere 9.1 for the micro-cap ETF (IWC), the stage is set for potential mean-reversion in these P/E ratios. It's worth noting that the performance of these indices follows cyclical patterns over extended periods.

What do you expect to see over the next 10 years?

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