The Bull Market Broadened Recently
Published Wednesday, January 13, 2021 at: 9:21 PM EST
Facebook, Apple, Amazon, Netflix, Google, and Microsoft – the six FAANGM stocks -- were the runaway leaders of the new bull market that began after stocks bottomed on March 23rd, but now the rally has broadened to the other 494 companies in the Standard & Poor’s 500. It’s good news.
The S&P 500 is a capitalization-weighted index, which makes the companies with the largest market capitalization more influential in the price of the index of the 500 largest publicly-held U.S. companies.
Over the 12 months ended Jan. 4, the widely-quoted S&P 500 index significantly outperformed the index of the 500 companies equally-weighted. Since the election, that’s changed. The equal-weighted index of the S&P 500 has outperformed the market-cap-weighted index.
The S&P 500 is a measure not just of stock prices; it’s a measure of the strength of the nation. The recent trend in which the other 494 companies in the S&P 500 are catching up to the FAANGM is good news. It indicates investor confidence in the broad economy following the leadership of the FAANGM. After a year of the pandemic, it is a sign of investor confidence in a return to normalcy. It shows the bull market is not petering out. Rather, a new leg of the bull run could be in the offing.
The broadening of the bull market has meant that large growth stocks like the FAANGM, which have dominated the Covid-19 bull market surge, have stopped outperforming value-stocks and small-capitalization company shares.
Now is a good time to check that your portfolio is properly diversified in accordance with your risk tolerance, and optimized to help you achieve your long-term investment goals.
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