Prudent mindset

The U.S. equity market size, in terms of market cap has doubled over the last 4.5 years. It’s now worth almost $64Tn. That’s more than the 12 biggest markets combined. If we drill down, we can see that the 10 largest companies in the U.S. account for $22.4Tn, or one third of the total, and the top 50, account for $37Tn, or 58% of the total. The level of equity market concentration is unprecedented, and it’s a sign of excess that eventually will be corrected. Earnings per share have not followed the explosion in share prices, so there is an air pocket that eventually will weigh in. Having said that, this situation is expected to continue, but since it’s highly dependent of very optimistic expectations, we can expect 2025 to be a volatile year. While it may be too soon for a defensive strategy, a prudent mindset may be more appropriate than an agreesive one.

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