2024 has been the year of the magnificent 7. 55% of the MSCI World gains on market cap is due to those 7 stocks. The question is, of course, if this is this sustainable going into 2025 and what would be the price in terms of volatility or drawdown that investors will pay when this phenomenon is unwound. In the chart below, we can see this compared to prior sector concentrations: Energy and Materials in the 80’s and Telecom and Tech going into the dot.com crisis. As you can see, concentration levels were significantly higher, albeit on a broader number of stocks. And in both cases, after 2 years of hype, a normalization process took place over 5 years, severe at the beggining, more peaceful at the end. Looking ahead, the path of least resistance seems to be a continuation of the movement, but we’re approaching the point where things no longer make sense.
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