Macro Minute: Week of October 23, 2023

I know I have written about the concentration of the magnificent seven before a couple of times, but at quarter end I thought I would highlight it again. My Twitter feed (@wesj22) has been full of various versions of this performance comparison for about a week.

When you get a concentration of a handful stocks holding most of the market capitol, you will get periods of dislocation like this. So far it has been in the Mag7’s favor, but you can imagine a time when the opposite could hold true. It’s not that hard of a stretch to see a rotation from these seven stocks to basically anything else that would cause a huge outperformance somewhere else in the markets.

To highlight how broad the outperformance by these seven companies have been, let’s look at a couple of charts from Fidelity’s Jurrien Timmer.

Here, Jurrien is pointing out the incredible dispersion of returns among the sectors this year. In a tweet he said that if the S&P 500 was only tech and energy it would be at 5000, but if it was only utilities and real estate it would be half that.

In this chart, he is showing how the equal weighted S&P 500 has basically gone down and sideways for two years. That is a long time for that to occur. My biggest takeaway from this whole discussion is that certain companies have been more sensitive to this rise in interest rates. While there are some large companies that have been a place to hide during this rate rise, the average company has been impacted a lot more that the cap weighted S&P 500 would suggest.

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