The S&P 500's upswing has been in effect for over 113 months - making this one of the longest bull markets (a market that rises without experiencing a drop of 20 per cent) in history. And if you adopt a solely US perspective, things are great! But it's not until you take a global perspective that you see the US market's performance for what it really is - an anomaly.
Take a look at the graphs below showing last year and this year's global markets' per cent returns. There is a definite discrepancy.
Now look at the composition of the S&P 500 to see where the performance is coming from.
When you look at the relative contribution of the S&P 500 you see that 51.4 per cent of the contributions are coming from 6 stocks (FAANMG - Facebook, Apple, Amazon, Netflix, Microsoft and Google) - historically all in the technology sector. And that those same 6 stocks are driving the market performance with a percentage increase of 27.9 per cent. So, if 494 of the S&P's 500 contributors are only seeing a 3.4 per cent increase, is the YTD performance really an accurate picture of broad growth?
Interesting to note that on Monday September 24, the S&P and MSCI changed how tech companies are categorized for the first time since 1999 - removing the existing Telecoms sector and creating a new Communications Services sector (The sector shuffle is something we started talking about back in June). With the creation of this new sector, some of the FAANMG stocks are being moved from technology into this new category. Now communications services will be the largest sector of the S&P 500 with about a 10 per cent weighting.
Narrowing of the market is a key late cycle indicator. Changing categories may mask the indicator but it doesn't change it. It is still just 6 stocks that are driving the overall market regardless of their sector classification.
The anomaly of the US market outperforming all others, developed and emerging, will end.
The rest of the world markets are down. And yet, that's not making news here in North America. That's why we believe it's important to be curious, look beyond the headlines and maintain a global perspective.