The benchmark index is currently trading at a premium of over 15% above historical averages, and even when excluding major tech and other large companies, valuations remain higher than historical norms. Out of 12 sectors in the index, seven are trading at more than a 10% premium to their historical averages.
These corporations have significantly contributed to the equity index returns this year, with a handful of companies in most sectors accounting for more than half of the sectors' returns. “As such, these “big” companies have been rewarded with premium valuations, trading at forward price-to-earnings of over 30x, on average. “
At the same time, HSBC analysts advise against positioning into small caps at this time. They stress that small caps historically tend to underperform following a Federal Reserve easing cycle, which is not typically accompanied by a recession.
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