When it comes to performance, mega-cap US tech is more exception than rule.
The Nasdaq 100 rebounded from its worst week since the March panic in Monday trading, but for US investors, recent dramatics served as a decidedly unwelcome reminder that while it’s nice to have superfirms “on your side” (so to speak), a concentrated market can be a dangerous market.
Outperformance for laggards like small-caps and value was small comfort during the September tech rout, where that just means that while an overweight in cyclicals would have shielded you from the worst losses, their relative resilience was no match for the “gravity” exerted by mega-cap growth’s tumble. (And please, nobody accuse me of misogyny for the chart header — it’s an old school video game reference.)
Notably, the recent correction in market leaders didn’t manage to push the group outside of “acceptable” outperformance boundaries. “The relative correction in mega-cap growth has only taken them to the bottom of the range around their very strong trend of outperformance year-to-date (44%)”, Deutsche Bank observes.
In a note out Monday, SocGen’s Andrew Lapthorne takes a moment to document the recent history of the Nasdaq 100 versus… well, versus everything else on the planet, in terms of equities.
“Price momentum in the Nasdaq 100 has of course been remarkable, with the average stock up 72% and the median stock up 46% since the Fed handbrake turned policy at the end of 2018”, Lapthorne writes, adding that “in 2020, the average stock is up 25%, with a median gain of 9.9%, indicating considerable skew to some big winners”.
By contrast, no other major global benchmark comes close on these simple measures.
While the Nasdaq 100 is the poster child, performance concentration shows up in a variety of global benchmarks thanks in part to overlap with the US (MSCI World) and to tech’s influence across regions (Tencent and Alibaba in EM).
“This level of performance concentration in just a few names is unprecedented and with those biggest names coming under pressure as Tech sells off, the positive mood seen in equity markets since mid-March could reverse very quickly”, SocGen’s Lapthorne cautions.
Given concentration fears and, relatedly, September’s brush with the unthinkable (i.e., a steep selloff in US mega-growth), Monday’s rebound for big-cap tech will be welcome a development.
Especially as it was accompanied by solid performance from small-caps and value, suggesting it’s still possible to have a market that’s not so damn bifurcated, the post-COVID experience notwithstanding.
