The Haves and the Have Nots
The headline is simply that the S&P 500 is up once again, yet this misses the actual story of the market in dramatic fashion. We have seen narrow markets before: The Nifty Fifty in the early 1970s; the dot-com boom of the late 1990s; the FANG stocks in the mid 2010s. However, I do not recall ever seeing a quarter when the Russell 1000 Growth Index was up over 8 percent while every other US Russell equity index was negative.
This time seems different than those other times in that the AI-driven Magnificent Seven are not in bubble territory; their businesses are growing at a pace close if not equal to their stock price. This time it seems like the market just keeps overlooking everything else.
Part of this is the same story of Wall Street continuing to see a recession behind every corner, but the actual data keeps saying that is not happening. The other parts of the market, small companies and value companies, have to close the gap. Reversion to the mean is one of the strongest forces in financial markets.
As Keynes famously said, “The market can stay irrational longer than you can stay solvent.” Who knows how long this will last, but it can’t last forever.
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