We’ve described the past several years’ stock market as a seesaw in which the “market” was the fulcrum of the seesaw. On one side of the seesaw sit the highly speculative growth sectors of the market (Technology, Communications, and Consumer Discretionary) coupled with innovation, disruption, and meme stocks. On the other side of the seesaw, sit virtually everything else in the global equity markets.
The seesaw tilted significantly toward the speculative side during 2020 and 2021, but then significantly tilted in the other direction during 2022. The S&P 500® Growth Index outperformed the Value Index by an annualized 20 percentage points from 12/31/19 to 12/31/21. But then the Value Index outperformed the Growth Index by 24 percentage points from 12/31/21 to 12/31/22. (See Chart 1)
Leadership becomes extremely narrow
The seesaw is now tilting back toward the speculative side in a tremendous way. The stock market’s leadership has become extremely narrow, meaning only a small number of stocks are outperforming and contributing to the market’s year-to-date advance.