Looking Back is 20/20...22

While both stocks and bonds have been recovering since the trough in October of last year, it is the performance of the US stock market that warrants more discussion, in particular: 1) market sentiment and 2) market concentration.


Market sentiment is the dominant attitude of investors, and it can be measured in many ways.  US stock market sentiment is currently running highly positive, too positive.  Investors are buying into an “all-clear” narrative: inflationary risks are waning, the Federal Reserve Bank is done or close to done raising short-term interest rates, the US economy has averted recession…bull market full speed ahead.  This may be premature.


The S&P 500 index is the most popularly cited proxy for the US stock market.  For the first half of 2023, the S&P 500 index was +16%.  By comparison, the tech-heavy NASDAQ-100 was +32%, its best first half performance in 40 years!

Top Constituents By Index Weight

Below is a chart we created mid-June for use in a presentation.  It’s clear that the S&P 500 has, itself, become a tech-heavy index.  And these heavily weighted, mega-cap tech companies are driving the performance of the index. Reason: AI-mania.

Chasing the Bull

The concentration has become so exaggerated in the NASDAQ-100 index that the index must undergo a special rebalancing, done only twice before, to maintain compliance with SEC fund diversification rules.

We are not interested in chasing tech performance here.  If this rally is sustainable, market breadth should widen to encompass other sectors and styles – ones with preferable valuations.  If the tech rally falters and their high P/E multiples contract, we would expect to fare better with our current positioning.

© Eagle Financial Management Services All Rights Reserved. Investment advice offered through Wealthcare Advisory Partners, LLC, (WCAP). WCAP is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). Eagle Financial is a Wealthcare Company.