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Market Concentration Follow-Up

On June 14th, we wrote, “The concentrated rally in US markets this year isn’t out of the ordinary . . . Going back to 1990, the top three names by market cap (i.e. the largest stocks in the S&P 500) outperformed the market three and six months after a recession bear market.”

What happens next is where things get interesting. Historically, markets enter a broadening out phase where “the rest” outperform “the best.”

The chart below breaks down returns through May 31st. The ten best performing stocks accounted for over 100% of the gain in the market. Many were either oversold in 2022 or seen as beneficiaries of artificial intelligence. Sometimes both. And if you didn’t own all of them, chances are your portfolio trailed.

Since then, the same stocks have slowed down. From the end of May, the S&P 500 is up 10% with the majority of gains coming from the other 98% of stocks in the index. If history doesn’t repeat, it rhymes.

Sources: Bloomberg, Ycharts, FactSet