Current market dynamics will be analyzed for years. Most of the (positive) performance of indices are explained by 5 stocks while the rest are trying to muddle through this quasi-recessionary, stagflationary and yet fully employed economy. Valuations on some of these stocks are comparable to the #dotcom era. In the chart below, you can see another incredible extreme. Apple market cap is now higher than the combined market cap of the components of the Russell 2000 index, the U.S. small cap index. The divergence in valuations is just staggering. Eventually, these extremes will be corrected and reversed. As you can see, the start of this phenomenon coincides with monetary tightening, on 2022, where investors have considered tech blue chips as a safe haven. Now that the fed has paused and may be close to the end of the tightening cycle, we may see a rotation into lower valuation assets, such as small caps.
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