When we think about reversals in the market, we likely think of brief turnarounds in performance. But what if it’s more? What makes a reversal turn into a recovery is a full-fledged long-term improvement in performance.
We can apply this logic to Equal Weight’s recent experience. After consistent underperformance since April 2017, the S&P 500® Equal Weight Index experienced a reversal in the past two months, outperforming the S&P 500 by 2% in October and by 3% in November. As Exhibit 1 shows, Equal Weight reduced its 12-month underperformance versus the S&P 500 by half to 6.2%, compared to August, when underperformance had dipped to 13.5%.
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