Market Perform

What Is Market Perform?

Market perform is an investment rating used by sell=side analysts when the expectation for a given stock or investment is that it will provide returns in line with those of the S&P 500 or other leading market averages.

Market perform is a neutral assessment of a stock and is neither strongly positive nor negative. If, however, the stock has gone through a period of market underperformance, it is an indication that the stock is expected to improve its performance relative to market averages. It may be contrasted with analyst ratings of underperform or outperform.

Key Takeaways

  • Market perform is a sell-side analysts' rating that indicates a neutral outlook for the shares of a company.
  • Market perform is roughly equivalent to the "peer perform," "neutral," or "hold" recommendations that are issued by other equity analysts.
  •  Analysts on the sell-side will write data-driven opinions to inform others on their research and in an attempt to sell particular stocks on behalf of investment banking clients. 

Understanding Market Perform

The phrase "market perform" tends to be a fairly lukewarm recommendation overall. A preferred investment vehicle would be one that is expected to outperform, or do better than, leading market averages. A "market perform" rating can be equated to such ratings as "hold" or "peer perform".

Ratings vary from firm to firm. Some firms simply do not use market perform as a rating, and those that do may be providing recommendations based on different time frames. A market perform from analysts of one firm may mean market average returns for 12 months while another firm's analysts are using six months or three months.

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

Market Perform in the Context of Other Analyst Recommendations

The two most powerful analyst calls are buy and sell ratings. Research has shown that buy recommendations are slightly more powerful in the market overall and they can accelerate a stock. The sell recommendation can lead to some acceleration, but it is most pronounced when a stock is already disliked by the market. Market perform sits between these two polar opposites, and that results in it being read as one or the other.

As mentioned, a market perform can seem like damning a stock with faint praise and this is especially the case when the analyst moves from a past buy recommendation to a market perform. This is seen as an analyst not quite ready to give the sell signal, but well on the way to it. It works the other way if the past recommendation was a sell. When the next recommendation is a market perform, some people read it as a tentative buy. So it is important to know the analyst's last recommendation in order to judge the sentiment that is behind the market perform rating.

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