reCap Blog

Social Security Fairness Act

It seems crazy that the S&P 500 is closing in on an all-time high, given what transpired the first part of the year with the pandemic and the market down about -35%. Yet here we are. However, when you look under the hood the positive performance is relatively narrow with a few asset classes leading the way. Of note, Large Growth companies are carrying stock market returns. An easy way to see this is through the performance of the S&P 500, which is a market cap weighted index (i.e. larger companies make up a larger % of the index) versus an Equal Weight S&P 500 (i.e. larger companies make up an equal % of the index as smaller companies). Historically the Equal Weight index has offered higher returns over the Market Cap Index over longer time periods, but not this year. Additionally, all other major equity asset classes outside of Large Growth have trailed the S&P 500. These include: Large Value, Mid Caps, Small Caps, Developed Markets, Emerging Markets, REITs, and Commodities. While Small Caps and International (and to a lesser extent Large Value) have picked up performance the last few months, the trend is still clear – Large Growth is dominating this market. There is a Bear and Bull way to look at this. Bear = returns are concentrated so if/when Large Growth retreats it will take the market with it. Bull = plenty of room for the laggards like Large Value, Small Caps, etc. to catch up even if/when Growth retreats. Along the way to the bull or bear case, the market should provide some clues as to which way it’s heading. For now, I side with the Bull camp. I feel that despite higher broad market valuations, presuming there is no second large-scale shutdown and a vaccine gets to market in the next 6 to 8 months, we could see the more cyclical parts of the market start to rally.

Over long time periods stocks have delivered around 6%+ REAL returns (accounting for inflation). Additionally, the longer the time horizon the more predictable those returns get – the range between the Max and Min returns narrows and % Positive and over 4% increases. S&P 500 Real Total Returns

Social Security Fairness Act

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