Terms

Market Perform What It Means How It Works

Market Perform What It Means How It Works

Market perform is an investment rating used by sell-side analysts to indicate that a stock or investment is expected to provide returns in line with the S&P 500 or other market averages.

Market perform is a neutral assessment of a stock, neither strongly positive nor negative. If a stock has previously underperformed the market, a market perform rating suggests that its performance is expected to improve relative to the market. This rating can be contrasted with underperform or outperform ratings.

Key Takeaways:

– Market perform is a sell-side analysts’ rating that indicates a neutral outlook for a company’s shares.

– Market perform is similar to "peer perform," "neutral," or "hold" recommendations from other analysts.

– Sell-side analysts provide data-driven opinions to inform others about their research and to promote specific stocks on behalf of investment banking clients.

Understanding Market Perform:

A market perform rating is generally considered lukewarm. A preferred investment would be one that is expected to outperform market averages. A market perform rating is similar to "hold" or "peer perform" ratings.

Ratings vary among firms, with some not using market perform as a rating and others offering recommendations based on different time frames. A market perform rating from one firm may mean market average returns over 12 months, while another firm’s analysts may use six or three months.

Some analysts provide recommendations for longer periods, such as 24 months, but these are often given with a range. For example, a long-term market perform may indicate that a stock is expected to be within 10% of the market average over those 24 months. It is important to note the difference between being 10% above or below average.

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Market Perform in the Context of Other Analyst Recommendations:

Buy and sell ratings are the most influential analyst calls. Research shows that buy recommendations have more impact on the market, while sell recommendations have a greater effect when a stock is already disliked. Market perform falls between these two extremes, leading to varied interpretations.

A market perform rating may be viewed as neither strongly positive nor negative, but it can also be seen as a hesitant sell if the analyst previously recommended buying the stock. Conversely, if the past recommendation was a sell, a market perform rating may be considered a tentative buy. Understanding the analyst’s last recommendation is crucial in interpreting the sentiment behind a market perform rating.

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