FOCUS: U.S. equities There is evidence that the equity rally is beginning to broaden. The divergence between a handful of mega-cap tech stock’s performance and the rest of the market has been well noted in 2023. Fewer than 10 of the 500 stocks in the S&P 500 index account for all the positive performance of the index this year. The AI phenomenon has further exacerbated the situation, with money flows cascading into anything AI.
Evidence is mounting that things may be changing. Why? Because the magic of self-correction and balance is increasing the interest in the unloved masses of stocks that have been becoming more and more attractive because of improving fundamentals and negative price moves. Goodreid’s small-cap portfolio now trades at just over 10 times earnings yet has projected earnings growth next year of 17 per cent.
This is a valuable lesson for all investors. Build portfolios around quality and value and let the money flow come to you. Chasing money flow may have short-term benefits but requires a nimble touch. Secondly, avoid concentration. Successful stocks are often bunched within the same sector because their success is related to top-down or macro reasons, not company-specific execution.