The markets are never fully democratic or egalitarian in their allocation of rewards and burdens. But the stock market is again in a phase where inequality issues among stocks, sectors and investment styles have become stark.
The tape has shown a strong preference for very big companies over smaller ones, organic-growth vehicles over economically cyclical plays and groups offering a reliable stream of cash flow and income over all others. Another way to view this: Certainly this is behind the strong outperformance of the real estate and utilities sectors, which both hit fresh highs last week. Every S&P utility stock is above its 50-day average, as are 88 percent of real-estate names and 78 percent of the consumer-staples sector.
This is not to suggest a dangerous level of concentration or overvaluation in the mega-cap tech group. The market in past decades has been far more top-heavy than it is now, with no immediate adverse consequences. And one could view the valuation gap is the market effectively rewarding the most resilient, financially formidable companies for their inherent advantages in a software-propelled economy undergoing constant disruption to traditional business models.
But boy to they look cheap, with the largest banks under 10-times earnings and the entire S&P financial sector around 11.4-times — nearly two multiple points below their five-year average, according to FactSet.
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