As we head into the end of the year, so much of the talk in the finance world has been centered around how most of the strong equity performance has been due to the largest handful of companies. This seeming constant commentary completely ignores what is happening with the equally weighted US indexes and even the US indexes with the “Mag 7” removed.
It also perpetuates this idea that having a small concentration of companies making up a larger percentage of the underlying index is uncommon. Most other developed countries, many of which are also seeing tremendous strength in their equity markets this year, have even more egregious imbalances between the sizes of their top few companies and the bottom masses.
Our focus is to look at the broadening strength of the equally weighted indexes and use this observation to build a successful investment strategy. With bullish sentiment rising beneath the surface, we must navigate an environment where more and more stocks will be participating in the upside momentum moving forward. Although this generally means more opportunities, it also creates a situation where the disparity between winners and losers becomes exacerbated. Stock selection takes precedence over sector allocation and even though the rising tide begins to lift all ships, the risk for underperformance becomes greater.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The content is developed from sources believed to be providing accurate information.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly.
Stock investing includes risks, including fluctuating prices and loss of principal.