It won’t surprise anyone to learn that stocks have been more macro-driven than average over the last two years.

So far, the 2020s are a ringing (albeit tragic) endorsement of my long-standing contention that investors and traders can’t conceptualize of markets as existing in anything that even approximates a vacuum.

Suffice to say my raison d’être — demystifying the nexus between geopolitics, socioeconomics and the behavior of financial assets — is experiencing a bull market that looks more secular by the year.

In the near-term, though, and focusing specifically on US equities, it’s possible the micro will be made “great again” (apologies for the bad joke).

“Although resilient macro data has outweighed a mediocre Q4 earnings season at the start of 2023, the S&P 500 has become less macro- and more micro-driven in recent months,” Goldman’s David Kostin said, in his latest.

Micro-driven environments are, of course, regimes in which the average stock’s return is explained more by idiosyncratic, company-specific factors versus beta, sector, size and valuation, all of which tend to respond to macro conditions.

Consider that, according to Goldman, the share of returns driven by micro factors has risen to 53% over the past six months, close to the historical average, and up markedly from a nadir of just 39% during the first half of 2022, when the macro once again took the proverbial reins.

The figure on the left is instructive. It gives you a sense of how adverse developments tend to create macro-driven conditions. The potential for adverse developments to proliferate going forward is, I think, quite elevated, as discussed in Friday’s weekly (which you should read if you haven’t yet).

Obviously, micro-driven environments present opportunities for stock pickers and, more generally, for alpha generation through higher dispersion. Dispersion is a function of elevated single-stock volatility and, by definition, low correlation. Although vol has receded since August, Goldman noted that a 19pp drop in average S&P 500 realized correlation was enough to offset that and drive dispersion above its three-decade, non-recession average.

“Currently, the Consumer Discretionary and Communication Services sectors offer the best stock-picking opportunities based on the dispersion scores of their median stocks,” Kostin went on to say, adding that Real Estate and Utilities offer the least alpha, given lower dispersion scores. Among notable names with the highest dispersion scores on Goldman’s calculations: Moderna, Netflix, Ulta, AMD and, naturally, Tesla.

Remember two things. First, this cuts both ways. High dispersion scores may be indicative of opportunities to generate outperformance, but they can also “generate” underperformance. Second, as Kostin readily conceded, “A recession would create an environment in which beta retakes the wheel.”