A look at stock market dominance in 2023.
In the first seven months of 2023, US stocks have been galloping ahead of their international counterparts, adding another chapter to the saga of US market supremacy that spanned the past decade. Some investors might interpret this as a reason to challenge the efficacy of global diversification. However, it’s crucial to highlight that the lead of the US market this year is significantly attributed to a select few stocks.
The Magnificent Seven: The Powerhouses of the US Market
The seven titans of the US market – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta – have collectively delivered an impressive return of 66.3%. This significant figure has contributed substantially to the outperformance of the Russell 3000 Index, which surpassed the MSCI All Country World ex USA Index by more than six percentage points. If we eliminate these seven stocks from the equation, the Russell 3000’s return plummets from 20.3% to 10.8%, lagging behind the non-US index, irrespective of its top seven contributors.
The Two Edges of Market Concentration: Risks and Rewards
Market concentration is a double-edged sword, proving beneficial during certain periods (like the present year) but potentially harmful during others. One of the main arguments in favour of global diversification is its capacity to dilute your portfolio’s concentration, thus cushioning the volatility caused by a few dominant stocks. To illustrate, the 25 largest US stocks comprise approximately 38% of the Russell 3000 Index but only 23% of the globally diversified MSCI All Country World IMI Index.
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Interested in diving deeper into this topic? If you’re seeking additional information or have queries about how these trends could impact your investment strategy, don’t hesitate to contact GSB Capital. We’re here to help you navigate the complexities of the global stock market.
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