Confusion and Anarchy In The S&P 500 (INDEXSP:.INX) – Stock in Focus Apple Inc (NASDAQ:AAPL), Morgan Stanley (NYSE:MS) and PepsiCo, Inc (NYSE:PEP)

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By Thomas Copeland on September 3, 2014 S&P 500

The S&P 500 (INDEXSP:.INX) Index which is the leading canon for stocks in America has dwindled. After buying consecutive gains for three years for the U.S Gauge have resulted in 77 close downs since 2012 and a valuation peculiarity that most people see as brutally indiscriminate buying.

This radical range in valuation and the opacity between good and bad companies has brought an identity crisis in the S&P 500 (INDEXSP:.INX), which has made the investors to buy stock randomly. This convergence between high end technology companies and small scale utility companies further leading to total anarchy in the market.

Gaps between stocks narrowed down when investors started to shift from high valued technology companies to defensive small scale industries such as utilities and consumer staples. This made the good and bad companies indistinguishable.

Valuations of companies which are defensive, and are traditional safe havens are suddenly now converging with high end companies whose profit growth is twice.

Price ratio earnings among the 50 largest companies in the S &P 500 have come down to the lowest since 1990, with the deviation of about 22 percent.

Valuations were at its peak when the internet bubble rose to the surface and technology shares soared high. The deviation from the mean was 57 percent in 1999. The S&P 500 (INDEXSP:.INX) peaked the next year and fell 49 percent through October 2002.

The rapid growth of ETFs, which invest in a barrel of shares, makes it easy to gather large positions without regard to the individual companies. The ETF industry has boomed in recent years, with assets tied to American equities reaching $1.1 trillion

Cash churning in and out of the funds will narrow valuations in the stock market over time as investors choose to transact in a plethora of shares, rather than get into intricate details such as company earnings.

Only a few months ago technology ETFs soaked $970 million and investors pulled cash out of safe-haven groups. That trend reversed in the following months, with cash coming out of technology companies and into utilities and consumer staples.

Kayne Anderson Rudnick Investment Management’s Chief invested officer said that there are a number of companies and industries doing pretty good, so the market doesn’t feel the desire to price one group much higher than everything else. He further claimed that it’s a much better balance.

The forecast made by Morgan Stanley (NYSE:MS) commended the S&P 500 (INDEXSP:.INX). The forecast claimed that a steady though sustained period of growth could help the equity benchmark peak near 3,000 by 2020 amid continued economic strength in the U.S.

United States’ second largest drug maker, Merck, trades at 17.2 times profit and analysts foresee a change in the profit by 2014.

Apple Inc (NASDAQ:AAPL) rabid growth isn’t being rewarded equally either. The mammoth tech gadget maker company has a price-earnings ratio of 16.6, compared with 20.8 for PepsiCo, Inc (NYSE:PEP). Analysts predict Apple will boost income by 14 percent this year.