As market concentration has grown, so have the risks associated with it. If the top-10 stocks experience a flat return and the remainder of constituents achieve a more typical long-term return of 7%, the overall index would return less than 5%. The “law of large numbers” comes
into play as the mega cap companies try to maintain growth metrics to support price and valuations but, if history rhymes, many may find it hard to sustain these levels in the future.
Large-cap U.S. equities had another banner year as the S&P 500 returned over 25%. Valuation and concentration have increased within the index as the “Mag 7” accounted for over 50% of the Index’s return in 20241. Historically it has been extremely difficult for companies to sustain high levels of growth for consecutive years and a reversion of these darling stocks may lead to higher volatility and offer opportunities in other areas of the market.
The information contained herein is confidential and the dissemination or distribution to any other person without the prior approval of Fiducient Advisors is strictly prohibited. Information has been obtained from sources believed to be reliable, though not independently verified. Any forecasts are hypothetical and represent future expectations and not actual return volatilities and correlations will differ from forecasts. This report does not represent a specific investment recommendation. The opinions and analysis expressed herein are based on Fiducient Advisor research and professional experience and are expressed as of the date of this report. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Past performance does not indicate future performance and there is risk of loss.
