Wednesday, March 31, 2021

A Change In Equity Market Leadership Is A Positive

One favorable aspect of the current equity market is the broader favorable performance across a wider range of asset classes and investment styles. I wrote about this in mid September last year and at the time raised the question whether this rotation or change in leadership had more room to run. The below chart clearly shows that a shift in leadership has carried through the first quarter of this year. The blue line on the chart represents the average total return of the six stocks, Facebook (FB), Amazon (AMZN), Netflix (NFLX), Google (GOOGL), Microsoft (MSFT) and Apple (AAPL). Collectively, these six stocks are trailing in performance relative to the other asset classes shown. Up until September though, the asset class returns were essentially reversed as seen in the second chart.

This broader participation is also showing up in better performance with other strategies like buyback focused ones or equal weighted strategies. The below chart displays the twelve month performance of a couple of these other strategies and both the Invesco Buyback Achievers ETF (PKW) and Invesco S&P 500 Equal Weight ETF (RSP) are outperforming the cap weighted S&P 500 Index.

And finally, the safe haven bond market has been anything but defensive. The last two categories on the below bar chart represent the performance of 10 and 30 year U.S. Treasury bonds. The move higher in longer term rates has certainly had a negative impact on longer term bond returns.

The one takeaway from this for investors is broader market participation is a positive sign for equities. I repeat this often though, and that is, the market will not go up in a straight line in spite of the strong returns since the March low last year.

Disclosure: firm and/or family long AAPL, GOOGL, MSFT, RSP

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