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"The 10 largest stocks were responsible for more than 70% of the gains through the first three months of the year. Should this worry you as an investor? Are this year’s gains a house of cards? Is this normal?" Link
Mike Wilson, a strategist at Morgan Stanley, has noted the spread between S&P 500 index and RSP index has increased since the beginning of the year. (He is one of the most bearish analyst out there and get ignored often). This implies that only a handful of large cap stocks are pushing the cap-weight index forward and masking the remaining 490 stocks. These are the tech stocks and they are trading at high valuation. This trend IMHO is not healthy as one would like to see a broad-based movement of all stocks that indicates a healthy economy. Earning reporting over the last several weeks is revealing the slowing and in some cases a downward trend.
This reminds me of the internet stocks during the run up of 2000. CNBC was cheerleading the Nasdaz moving passed 5,000 as bubble grew and grew (>800%) Then came October 2000 the dotcom bubble burst, and Nasdaz gave up all its gains during the bubble (740%). Will this time be differs than previous market cycles? I think we are heading into a recession and the severity is unknown.
@Sven As I recall, a lot of the dot com companies were not really making money. Those that were became over priced from all the money flows. So, yes; a very expense market at the time. Not the case today, with many tech. companies having decent balance sheets, IMHO.
@catch22, agree that 2023 is somewhat differ from the dot-com time period with respect to profit. One has to view the tech companies not merely a monolithic sector but rather on company by company basis. Some semiconductor companies including Intel cut their dividends. Also the forward guidance for rest 2023 is mixed. In light of decent earning reporting by a few large tech, what price are you willing to pay?
Agree with all. What struck me in looking at the chart is that Berkshire is in the 6th spot behind Apple and a few others. It has been even nearer the top over the past decade. Since about half of Berkshire’s equity position is invested in Apple, I hope it’s not a case of the elephant chasing its tail.
I’ve always felt international diversification across regions and currencies to be important for my own goals. Even if those markets haven’t kept pace with the U.S.. Can’t speak to what’s best for others.
Periodically, the S&P 500 becomes concentrated in its top holdings. This is a feature, not a bug, of cap-weighted indexes. The top 10 holdings in the S&P 500 comprised 27% of the index as of April 27, 2023. The S&P 500 returned 8.3% YTD (through April 27). The top 10 holdings contributed 6.0% of the return while all other holdings contributed only 2.3%.
Fundamental indexes (weighted by earnings, revenue, dividends, etc.) attempt to circumvent concentration risk. These alternate-weighted indexes often have value and/or small-size factor tilts. Concentration risk may be eliminated but other risks are introduced.
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https://www.mutualfundobserver.com/discuss/discussion/60546/equal-weight-market-cap-sector-etfs#latest
This reminds me of the internet stocks during the run up of 2000. CNBC was cheerleading the Nasdaz moving passed 5,000 as bubble grew and grew (>800%) Then came October 2000 the dotcom bubble burst, and Nasdaz gave up all its gains during the bubble (740%). Will this time be differs than previous market cycles? I think we are heading into a recession and the severity is unknown.
ASML has same P/E and Price/sales as MCD! I would bet on chips, not burgers
I’ve always felt international diversification across regions and currencies to be important for my own goals. Even if those markets haven’t kept pace with the U.S.. Can’t speak to what’s best for others.
This is a feature, not a bug, of cap-weighted indexes.
The top 10 holdings in the S&P 500 comprised 27% of the index as of April 27, 2023.
The S&P 500 returned 8.3% YTD (through April 27).
The top 10 holdings contributed 6.0% of the return while all other holdings contributed only 2.3%.
Fundamental indexes (weighted by earnings, revenue, dividends, etc.) attempt to circumvent concentration risk.
These alternate-weighted indexes often have value and/or small-size factor tilts.
Concentration risk may be eliminated but other risks are introduced.
The value penalty has been seriously real for over 45y, sc too, seems to me