2023 continues to be a year of 2 markets when it comes to equity investment. They used to be called FAANG, now they are called the magnificent seven. The S&P500 YTD performance (12.83%) can be splitted between the performance of those seven stocks, the one that have really contributed to it and the other 493 which have basically done nothing. In terms of valuation, the magnificent seven started the year with a combined P/E of 29, which can be considered expensive, only to become more expensive today at a combined ratio of 45. The rest of the market continues to be inexpensive at a valuation of 17 times earnings, but also uninteresting, at least when it comes to flows and performance. When the breadth of the market is this bad, there’s usually a spike in volatility as the concentration of flows into a few expensive stocks make them more vulnerable to profit warnings.
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Chart source: Apollo.
