Broadening Market Participation
Hear portfolio manager Austin Hawley, CFA, discuss how market breadth evolved in the back half of 2024 and the implications on valuations. (2 min video)
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Q: How did market breadth evolve in the back half of 2024 and what implications did that have for valuations?
Austin Hawley, CFA
We've continued to have a very strong equity market with double-digit gains across nearly every style or market cap range. You look at, unlike the first six months of the year, which were really driven by the large-cap growth stocks, the last five and a half months have looked somewhat different in that we have had much broader participation from other portions of the market, most notably in the last five and a half months. Small caps have led in terms of performance up nearly 18% since midyear. And if you look at an even more recent period of time, if you look from the end of September 30th, we've had some even wider divergences in performance with a sort of strange mix of leadership with large-cap momentum stocks, as well as large-cap value cyclicals, and small caps all significantly outperforming more traditional large-cap value stocks over the last two and a half months or so.
And so, a much wider range of companies that have participated in a very strong equity market this year. What that means in terms of valuations is that stocks are more expensive and not just those large-cap stocks. I feel like I've gone to the quick response of, well you got to look beyond the Mag Seven at what the rest of the stocks are valued at for the last few years. And it's getting much harder to make that argument because a lot of other areas of the market have seen significant share price appreciation at rates that are in excess of what we think kind of normal intrinsic value growth has been, meaning that that gap is closing a little bit for those areas of the market where we have seen more value over recent years and we're stuck in a place today where if you look across the market, I'm hard pressed to see absolute valuations that seem particularly attractive really anywhere in the market. And I'd say the biggest issue continues to be in large cap where those valuations are particularly expensive today.
Russell 2000 Index measures the performance of roughly 2,000 US small-cap companies. The index is unmanaged, market capitalization weighted, includes net reinvested dividends, does not reflect fees or expenses (which would lower the return) and is not available for direct investment. Index data source: London Stock Exchange Group PLC. See www.silvercrestjefferson.com/disclosures for a full copy of the disclaimer.
The views expressed are those of the speaker as of December 2024 and are subject to change without notice. These opinions are not intended to be a forecast of future events, a guarantee of future results or investment advice. Investing involves risk, including the possible loss of principal. Past performance is not a guarantee of future results.