NON-S&P 500 STOCKS REACH LOWEST RELATIVE VALUATION IN DECADES Perhaps the defining characteristic of the bull market of recent years has been its exceedingly narrow breadth, rivalled only by the markets of the 1920s, the “Nifty Fifty” era of the early 1970s, and the internet bubble at the turn of the century. All but the most casual market observer will know that the current bull market has been led by the fabled FAANG stocks, plus Microsoft and a relative handful of other issues.
The concentration of current leadership is so pronounced. Moreover, that the 6 largest companies in the S&P 500 represent an almost 30% weighting. Indeed, these mega-cap stocks have produced more than 50% of the index return by the S&P 500 in recent years. An axiom of ours is that all market extremes should command investors attention, and this is no exception.
NON-S&P 500 STOCKS REACH LOWEST RELATIVE VALUATION IN DECADES
The concentration of capital flows into very large-cap S&P 500 stocks has produced a two-tier stock market, with non-S&P 500 currently trading at their most attractive relative valuations in decades. We hasten to add that attractive relative valuation does not necessarily equate to attractive absolute valuation. The current very richly priced S&P 500 means that relatively cheap may still not constitute a true bargain.
The timing of the next bear market is as uncertain as it is inevitable. History suggests that each successive bull market is led by different stocks than its predecessor. The leaders of the next bull market that will present the greatest opportunities may well be found in the non-S&P 500 stocks, ones that are currently being shunned by investors. If you found this post of interest, you’ll find the Global Investment Letter of value. To view free sample issues and to receive our weekly investment comment please visit: https://lnkd.in/e3BaS3P.
Written by Jonathan Baird,CFA
The Global Investment Letter is a monthly journal that covers major equity, currency, and fixed income markets. We also cover important commodity markets such as gold and oil. In addition, the fundamental and technical analysis of these markets is conducted within the current geopolitical context.
It is our view that macro factors such as geopolitics have a much larger influence on investment returns now than at any time since WW2. We provide context and ideas for investors. Jonathan was a successful money manager for many years. Furthermore, developed a pragmatic approach to investing that is reflected in the newsletter, a basic premise of his approach is that all markets are interconnected. Free sample issues, articles and videos are available on the website.