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The market’s weighting machine

Market milestones are typically defined by extremes. Often, those extremes are not identified at the time, but looking back in time and comparing it with a similar period in history. The chart below shows an example of extremes. The difference in performance between the S&P500 market cap weighted index and the equally weighted index is now showing a reading not seen since the #dotcom era. Concentration on a few tech names such as #faang, has created a poor market breadth, which is in fact bullish, but it typically ends abruptly when valuations cannot keep up with expectations, and then adjustments and rotations ocurr. Although the current reading is below the excess of the ‘00s, and it could surpass it, it is high enough to start thinking about the second part of that movement. Paraphrasing Warren Buffett, the market is a weighting machine in the long term, and the gravity pull can kick in anytime.


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