Data-driven insights and analysis from our investment team every week.
This week’s Chart of the week illustrates the waning influence of the mega caps over the last three months. The equal-weighted index, which is adjusted so that no one stock can dominate, has outperformed the S&P 500, which is market-cap weighted, over this short time frame. This has been driven by a re-rating of stocks outside of the IT and Communication sectors since the beginning of the second half of this year, most notably in defensive and interest rate sensitive sectors.
So, what does this tell us, and can it help us position for
the future? It signals to us that the market is broadening out as it moves from
inflation to growth concerns and senses the beginning of an interest-rate
cutting cycle. What’s interesting about the end of this Federal Reserve tightening
cycle is that we haven’t had a financial crisis or recession associated with it
unlike several episodes in the past. But the market remains nervous,
nonetheless. We have seen it gyrate recently in response to varying weaker
economic data. This helps to explain some of the defensive posturing in the
market. This is all consistent with a more-late cycle market and it is why we
stay modestly underweight in equities with a focus on defensive quality and
structural growth.
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