The May Green Book, published a short three weeks ago, included an article titled “Market Narrowness in 2023” discussing the Big Tech theme’s market leadership this year. We noted that 77% of the S&P 500’s year-to-date return through April 30th was produced by the nine S&P 500 members of the NYSE FANG+® Index, itself a collection of just ten large companies that dominate the Social/Cloud/Innovators cohort. (As for which FANG+ company is not also in the S&P 500, that is your puzzle challenge for this long weekend.)
The S&P 500 posted a 7.7% price gain for the six months ended April 30th, although this advance has been a hard-fought battle as gains have resulted from a narrow list of drivers. Style leadership has been concentrated in mega-cap tech names, such that the ten members of the NYSE FANG+® Index have produced 77% of the S&P 500’s YTD gain. Furthermore, gains over recent months have resulted solely from expanding multiples. Narrowness in either thematic leadership or price drivers is concerning because breadth is a useful concept in evaluating the staying power of a market advance. In light of this year’s market action, we are intrigued by the notion of measuring breadth not simply by price moves alone but by examining each of these two important sub-components individually. Does today’s environment, where price gains are driven by valuation increases alone, tell us anything about future market returns?
Growth and Tech have been the flagrant winners YTD, yet the SVB crisis triggered further bifurcation: Since SVB failed, it’s been important to own only “big” Growth and “big” Technology, amplifying the multiples of monster stocks, like MSFT and AAPL. Can a major market low occur when investors are herded in a handful of the most richly-priced public companies in history?
The S&P 500 posted an encouraging +9.2% YTD, but below the surface that strong return was the result of a limited number of influences. There is narrowness in both thematic and return drivers; the fact that gains have not been broad-based is cause for concern about performance during the remainder of 2023.