Should investors be worried about a narrow market?

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While diversification is always important, some experts say the tech giants have more room to run

On the surface, the first half of 2024 has been strong for the markets, with many world stock indexes trading around record highs. But if you look a little closer, it’s clear that a small group of stocks are powering the market.

This phenomenon raises crucial questions for investors, such as how long the “narrow market” driven by a few stocks will last, whether these stocks are vulnerable to a correction, and how to position portfolios. In terms of whether investors should worry about the narrow market, Mr. Steinberg says they should always be concerned if their portfolio becomes too concentrated in a small group of “hot” stocks in a single sector while losing sight of valuations.

“These stocks are out of favour, yet all of them are trading at attractive prices and offer growth at a very reasonable price,” he says. Ms. Gardner notes that defensive stocks and fixed income – along with large-cap growth stocks such as tech companies – have historically performed best following the commencement of an interest rate-cutting cycle, so there’s a catalyst for other stocks to catch up.

“Novo Nordisk A/S is more than 60 per cent of the Denmark exchange. And, of course, many Canadians will remember – or probably hope to forget – that one stock, Nortel Networks Corp., was 35 per cent of the S&P/TSX Composite Index in 2000.”

 

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