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What is Market Performance?

Market performance is an investment rating used by sell-side analysts when a given stock or investment is expected to provide returns in line with those of the S&P 500 or other market averages.

Market performance is a neutral assessment of a security and is neither strongly positive nor negative. If, however, the stock has gone through a period of market underperformance, this indicates that the stock should perform better than the market averages. This can be contrasted with analyst ratings of underperforming or outperforming.

Key points to remember

  • Market performance is a sell-side analyst rating that indicates a neutral outlook for a company’s stock.
  • Market performance is roughly equivalent to “peer performance”, “neutral” or “sustainable” recommendations issued by other stock market analysts.
  • Sell-side analysts will write data-driven opinions to inform others about their research and for the purpose of selling particular stocks on behalf of investment banking clients.

Understand market performance

The phrase “market performance” tends to be a pretty lukewarm recommendation overall. A preferred investment vehicle would be one that is expected to outperform or outperform major market averages. A ‘market performance’ rating can be equated with ratings such as ‘maintain’ or ‘peer performance’.

Ratings vary from company to company. Some companies simply don’t use market performance as a rating, and those that do may provide recommendations based on different timeframes. One company’s analyst market performance may mean average market returns for 12 months while another company’s analysts use six months or three months.

Some analysts give recommendations for a much longer period of time, even up to 24 months, but these are generally meant to be read with a range. For example, long-term market performance may mean that the stock will be within 10% of the market average over those 24 months. Of course, there is a big difference between being 10% above average and 10% below average.

Market performance in the context of other analyst recommendations

The two most powerful analyst calls are buy and sell quotes. Research has shown that buy recommendations are slightly more powerful in the market as a whole and can speed up an action. The sell recommendation can cause some acceleration, but it is more pronounced when a stock is already hated by the market. Market performance falls between these two polar opposites, so it is read as one or the other.

As mentioned, a market performance can seem overwhelming for a stock with low praise and this is especially the case when the analyst moves from a past buy recommendation to a market performance. This is seen as an analyst not quite ready to give the sell signal, but on track. It works the other way around if the past recommendation was a sell. When the next recommendation is a market performance, some people read it as a tentative buy. It is therefore important to know the latest analyst recommendation in order to judge the sentiment behind the market performance rating.

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