US equity market concentration presents both risks and opportunities

Wednesday 27 December 2023

Investment Talks

US equity market concentration presents both risks and opportunities

December 2023 | Megacap stock have delivered nearly all of the performance in US equity markets in 2023, and we believe the performance of these stocks relative to the rest of the equity markets is unsustainable. Apart from the megacap stocks, US valuations appear reasonable, with the S&P 500 Equal Weight Index is trading at a 16x P/E ratio, in line with historical averages. As we enter 2024, we think investors will be best-served by diversifying away from megacap stocks into value stocks and reasonably priced growth stocks.

01 | Historically, periods with significant increases in concentration have been followed by sharp reversals.

02 | Apart from the megacap stocks, US valuations appear reasonable, with the S&P 500 Equal Weight Index trading at a 16x P/E ratio, in line with historical averages.

03 | We believe investors could be rewarded for underweighting megacap stocks and overweighting average stocks, including value and reasonably priced growth stocks.

US equity market concentration

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of November 30, 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the [author] and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.

RO ID# 3298195
©2023 Amundi Asset Management

Other news

01/10/2025 Investment Talks

January 2025 US High Yield Market Outlook & Positioning

Although full year 2024 returns for High Yield were strong and spreads tightened during the fourth quarter, fourth quarter returns were weak with losses in both October and December due to yield curve headwinds. While defaults have moderated over the last few months, Moody’s recently increased its year-end global speculative grade default by issuer forecast to 4.6% on weaker US employment. Moody’s also projects the global default rate by issuer count to decline steadily across 2025, reaching 2.7% by next November.

12/31/2024 Investment Talks

What is in store for tech?

To date, the US tech winners have been those companies that are engaging in substantial AI investments. The question is how and/or when will these be monetized. In the US, we expect a reset of the tech sector valuation levels, and we prefer to diversify risk away from monothematic AI plays. Specifically, leading memory players are building up capacity in high-bandwidth memory, which supports the training of AI models, and there could be a risk of over-capacity. There is also a greater focus on geopolitics among investors, and share price volatility could increase in 2025 as Trump's government is inaugurated. The primary issues are tariffs, revisions to the US Chip Act and a fall in China-US relations, all factors that could hurt the semiconductor supply chain globally.

12/23/2024 Investment Talks

Floating Rate Loans: Attractive Income Potential in an Expensive Market

Corporate debt spreads have tightened to near-record levels as the US economy has continued to expand and the Fed has begun to decrease its short-term interest rate target. We believe the improving credit health of the loan universe, the fact that loan coupons are priced off the front end of the still-inverted curve, and the strong possibility that the Fed will be unable to cut rates quickly due to sticky inflation, support the inclusion of loans in income-oriented portfolios. Additionally, considering the likely continuing stickiness of core services inflation, we believe floating rate assets such as loans are currently an attractive option to add diversification to investors’ fixed income portfolios, which are generally weighted in favor of fixed-rate instruments. In effect, we consider loan allocations to represent hedges against continuing high inflation.

See more news