These four stocks account for 50% of world market returns over the past three years

BofA Securities’ Australia-based quantitative strategist Nigel Tupper published a deep look into the history of market concentration and uncovered some remarkable facts. Most importantly, equity market dependence on a few megacap stocks is nothing new, and only 54 stocks out of approximately 3,000 accounted for half of all global equity market gains over the past 20 years
Investors concerned about market concentration in the S&P 500 will not be thrilled to hear about global market attribution. Mr. Tupper found that over the past three years only four stocks – NVIDIA Corp., Microsoft Corp., Apple Inc. and Eli Lilly and Co. – contributed 50 per cent of returns for the MSCI All Country World Index.
Year to date, Nvidia, Microsoft, Amazon.com, Meta Platforms Inc., Eli Lilly and Taiwan Semiconductor Manufacturing Company (TSMC) have combined to account for 51.3 per cent of the returns for the global equity benchmark. Asian markets specifically have been even more concentrated as TSMC, Tencent Holdings Ltd., Hon Hai Precision Ltd. and SK Hynix have combined to determine 75 per cent of returns for the MSCI Asia ex-Japan benchmark.
Mr. Tupper noted that in current narrow market conditions, “a view on the [dominant] stocks arguably becomes more important than country, sector, or style allocation.” Active managers have even more trouble than usual keeping up with their benchmarks because to do so means fund portfolios must become just as concentrated, which takes away from risk management.
The strategist noted that dominant stocks have changed over time. General Electric Co. and Exxon Mobil Corp. were top three contributors for the 2004-2016 index return period but have far less influence now. Apple, Microsoft and Amazon.com, however, remain dominant forces after 20 years.
Bob Farrell, famed strategist for BofA Securities precursor Merrill Lynch, made “Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names” one of his ten most important rules about investing. Clearly there is more risk when returns become dependent on a few stocks, as investors learned in early 2000.
BofA Securities expects market leadership to broaden in the U.S. It predicts that the average earnings growth for the Magnificent Seven stocks in 2024 to be the same as the other 493 companies in the benchmark. This, however, becomes more in question as economic data continues to disappoint.
No one has been consistently able to pick market tops so I’m not about to try that here. Investors should be cheering any signs of broadening leadership in equity markets as, whether visible or not, conditions will remain precarious otherwise.
— Scott Barlow, Globe and Mail market strategist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
Capital Power Corp. (CPX-T) John Heinzl says Capital Power offers an attractive yield, a well-covered dividend and opportunities for growth as the world consumes more electricity. With some help from lower interest rates, the shares could break out of their recent trading range, he says.
The Rundown
Trump Media, crypto stocks jump as shooting boosts odds of election victory
Crypto stocks, prison operators and other shares that could benefit from a Donald Trump presidency jumped on Monday as an assassination attempt on the Republican candidate boosted odds of his victory in the U.S. elections.
Four reasons to be wary of a U.S. stock market that seems increasingly frothy
Over the past decade, stocks listed in the United States have thumped their international rivals, producing returns that have been more than twice as high as the payoff from stocks in the rest of the world. But past performance says little about what lies ahead. The question now is whether Wall Street can continue to be investors’ no-brainer choice for the decade ahead. To Ian McGugan’s mind, that seems highly unlikely. He offers four reasons why you may want to start reining in your U.S. exposure.
These two Canadian tech stocks are standing out in the sector
You can’t always believe everything you see. For example, sub-indexes usually offer an accurate assessment of what’s happening in a specific sector of the economy. But not always. Look at the S&P/TSX Information Technology sub-index. Based on the year-to-date gain of only 4.1 per cent, you’d think there was nothing happening there that is worth your attention. You’d be wrong. The index is being dragged down by its largest single component, Shopify Inc., which is off 14.2 per cent so far this year. Many of the other companies in the index are doing very well, including these two that are still rated buys by Gordon Pape.
The case for keeping emergency savings in your investment account instead at the bank
The latest generation of high-rate savings accounts are an excellent place to park money you need to keep safe and available on short notice. But if you want a better interest rate, consider keeping your savings in an investment account, says Rob Carrick.
Others (for subscribers)
The most oversold and overbought stocks on the TSX
Monday’s Insider Report: Billionaire Eric Sprott sells this stock that’s doubled in 2024
Monday’s analyst upgrades and downgrades for July 15, 2024
Globe Advisor
Work-from-home ETFs latest thematic funds to face reckoning
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis.
What’s up in the days ahead
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
Compiled by Globe Investor Staff