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The S&P 500 is up 21% year-to-date. “Wait, what?” you may be considering. Yep, it’s true. 21%. This quantity won’t shock index fund holders, however it’s more likely to stun particular person inventory pickers. The S&P 500 is outperforming 73% of the inventory within the index!
Seven lethal shares are driving an Andre the Big-sized gap by the efficiency of the S&P 500 and the efficiency of the S&P 493. The magnificent 7 are up 105% year-to-date whereas the S&P 493 are up simply 7%.
This surprising disparity, and I don’t imply to downplay it, is rather less surprising if you zoom out. Mega cap tech bought destroyed in 2022. These have been among the peak-to-trough declines:
- Google -46%
- Amazon -56%
- Nvidia -66%
- Fb -77%
An equal-weighted magazine 7 portfolio had a 48% drawdown in 2022 that bottomed two days earlier than the brand new 12 months. So to not take something away from the spectacular run, however you possibly can’t discuss 2023 with out 2022. Over the past two years, the magnificent 7 has barely crushed the S&P 500.
The query going ahead is, is that this unhealthy? Like, what follows slender management? Traditionally, it’s not nice. The following chart reveals earlier durations of utmost outperformance of the cap-weighted index over the equal-weighted one. 1973, 1990, 1999, 2020, and now right now. Yikes.
Solely 4 earlier examples of this hardly supplies us with any conclusive proof, however nonetheless I assumed this was attention-grabbing. The chart under reveals a greater depiction of 1-year ahead S&P 500 returns (in crimson) following a 12 months of narrowing management. Not nice, not all unhealthy both.
Josh and I lined this and far more on an unbelievable episode of The Compound & Associates with the sensible Dr. David Kelly of JP Morgan.
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