US equity market concentration presents both risks and opportunities

Wednesday 27 December 2023

Investment Talks


US equity market concentration presents both risks and opportunities

December 2023 | Megacap stock have delivered nearly all of the performance in US equity markets in 2023, and we believe the performance of these stocks relative to the rest of the equity markets is unsustainable. Apart from the megacap stocks, US valuations appear reasonable, with the S&P 500 Equal Weight Index is trading at a 16x P/E ratio, in line with historical averages. As we enter 2024, we think investors will be best-served by diversifying away from megacap stocks into value stocks and reasonably priced growth stocks.

01 |  Historically, periods with significant increases in concentration have been followed by sharp reversals.

02 | Apart from the megacap stocks, US valuations appear reasonable, with the S&P 500 Equal Weight Index trading at a 16x P/E ratio, in line with historical averages.

03 | We believe investors could be rewarded for underweighting megacap stocks and overweighting average stocks, including value and reasonably priced growth stocks.

US equity market concentration

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of November 30, 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the [author] and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.

RO ID# 3298195
©2023 Amundi Asset Management

Other news

IT-US HY Outlook
04/17/2024 Investment Talks

US High Yield Market Outlook and Positioning

Although first-quarter returns proved to be anemic, at least they were consistent. Across the quarter, monthly returns were positive and spreads moved tighter. With inflation's decline stalling, short-term rate expectations stabilized. Within high yield, Treasury yield increases largely negated the effects of tighter spreads, leading to returns near the index's coupon yield. Although CCCs were the best performers in the US and globally, the US High Yield Distressed Index  (comprised of issuers with spreads over 1000 basis points) underperformed the broader US high yield market, indicating investors were more interested in high-yielding bonds than in potential workouts.

IT-Bonds Take Center Stage
04/05/2024 Investment Talks

Bonds Take Center Stage

For most of the last year, savers have been earning a reasonable return in cash. But how long can these compelling cash rates last? Historically, the answer has been: not very long. In every rate hike cycle since the 1970s, the US Federal Reserve has “paused at the peak” federal funds rate for a matter of months, not years, and history suggests the rate cuts could begin soon. With history as a guide, we believe investors may benefit from locking in some of today’s historically elevated interest rates by moving out of cash and into short-term bonds.

03/01/2024 Investment Talks

Passive to Active: Words of Wisdom from Ted Lasso

Passive strategies have generally have fared well over the past decade, which has made it easy to forget the long periods during which active managers outpaced passive approaches. The reasons we believe market concentration will decline include (1) a shrinking earnings advantage for the top ten companies, and (2) seemingly unsustainably high valuations. We believe investors may benefit from investing with active managers that thoughtfully select their exposure based on the earnings and valuation profile of each stock.