Much has been written about the breadth of the U.S. market and the concentration on a handful of stocks, also known as the #magnificent7. If we take for instance the S&P500, we will find that the top 10 biggest companies account for 34% of the total, and that is actually historically high. But when you look at the chart below, you realize that with the exception of Japan, the U.S. is the least concentrated of the biggest markets. In most european markets the 10 biggest names account for more than half of the market. This phenomenon is accentuated by passive strategies (ETFs and Index funds) which allocate flows by market cap. In an environment like the current one, where we have anemic economic growth, big companies have trouble growing the top line, and although they can still use financial engineering to produce a decent bottom line, without growth, eventually they’ll miss earnings expectations. Equity markets are getting riskier.
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