The L&D Arizona Financial Index Reflects Market Resilience1

By Lora Mwaniki-Lyman and Daniel Joseph Kinnear
May 16, 2011

The L&D Arizona Composite Index has remained in positive territory since it was launched in December 2010.  This was despite a weaker than expected economic outlook, the European debt woes, the possibility of armed conflict in the Korean Peninsula and the popular uprisings across the Middle East and North Africa. The index shrugged off the global economic and political uncertainties to finish off 2.4 percent higher in March 2011 over the prior four months.

The Index is price-weighted and tracks the stock performance of Arizona-based companies traded in both the NASDAQ and NYSE. Two sub-indices assess the performance of stocks by exchange.

The L&D Arizona 13 sub-index made up of companies traded in the NYSE, and the L&D Arizona Tech sub-index composed of stock prices of companies traded in the NASDAQ.

Most of the gains in the L&D Arizona Composite Index were driven by stocks of technology companies traded in the NASDAQ stock exchange. The L&D Arizona Tech sub-index was up 8.6 percent between December 2009 and March 2010 while companies whose stocks are traded in the NYSE lost 1.5 percent in the same period, as indicated by the L&D Arizona 13 sub-index.

When compared to the broader market, both the L&D Arizona Composite Index and its Tech sub-index continue to outperform their market benchmarks. The L&D Arizona Composite Index grew by a compounded annual growth rate of 2.6 percent in the last 4 years, a faster growth rate than the S&P Small Cap 600, which grew at 1.5 percent in the same period.

The Tech sub-index continued to prove that small-cap growth companies generally lead out of a recession. The sub-index grew at an annual rate of 5.9 percent since 2006 compared to the NASDAQ, its market benchmark, which grew by 2.7 percent within the same period. More than 80 percent of the companies in the Tech sub-index have a market capitalization of less than $2 billion.

Arizona’s mainstream companies stocks traded in the NYSE did not perform well over the last 4 years but still managed to outperform their market benchmark. The L&D Arizona 13 sub-index contracted at a compounded annual growth rate of -1.2 percent since 2006, beating the S&P 500 and DJIA which shrank at -2.7 and -1.7 percent respectively.

The L&D Arizona Composite Index and its Tech sub-index bring into the limelight Arizona’s exceptional high-tech cluster industries and strong manufacturing base.

The L&D Arizona Composite Index is heavily weighted in manufacturing stocks (57 percent), with companies in the Computer and Electronic Products category accounting for 25 percent of the firms in the index.
Data Source: Yahoo! Finance and EBR

It is not surprising that this category also featured as Arizona’s top export category in 2010.

 

Footnotes:

For additional information, please contact the Economic and Business Research Center.