Along these lines, there are four charts that tell important stories for investors and provide hard data, rather than just speculation.
The five largest companies in the S&P 500 — Microsoft, Apple, Alphabet, Amazon, and Tesla — are even more disproportionately represented and make up more than 20% of overall capitalization.
The “market” is much more skewed toward massive tech and software stocks, so the headlines are less representative of all the stocks that comprise the S&P 500, Nasdaq, or Dow Jones Industrial Average.
These stocks have higher valuation ratios and lower dividend yields than the market leaders in past periods, so it’s fair to expect more volatility.
Ultimately, index investors aren’t getting the same level of diversification that has traditionally been a cornerstone of passive investment strategies.
The above chart displays the cumulative percentage growth of the S&P 500 and monthly GDP in the U.S.
Some of this can be explained as pent-up demand after the first half of 2020 was disrupted, but there’s more going on here.
The explosion of SPACs has also drastically inflated the number of IPOs over the past two years, though this effect might be dissipating.
It’s anyone’s guess where the market goes from here, but we can conclude that lots of savvy financial minds are cashing in because they like the valuations in today’s stock market.
Investors are simultaneously digesting strange employment news, pandemic uncertainty, threats of high inflation, corporate earnings, and imminent monetary tightening from the Fed.
Things have settled down since last year, even in comparison to the rocket ship recovery that started in Q2 2020.