The story of the equity market over the last 18 to 24 months has been the dramatic outperformance of the Magnificent Seven stocks, largely because of this AI FOMO trend that’s been going on, artificial intelligence, fear of missing out. So those seven stocks over the last 18 months are probably up 120% compared to less than 20% for the forgotten 493. As a result, we have a two standard deviation valuation imbalance between growth and value right now. The likes of which have only existed three times in the last half century: the bursting of the tech bubble in 2000, the bursting of the COVID bubble in 2020 and today. And as a result of the first two of those situations, value went on to dramatically outperform growth over the next couple of years. That trend is starting to happen now, and the reality is we do not believe that the dramatic outperformance of a very narrow sleeve of stocks is sustainable longer term.
So we believe that this rally will broaden out. That the stocks that have literally been left for dead the last couple of years are going to have their moment in the sun over the balance of this year. So making sure that you’ve got some domestic large-cap value, some domestic large-cap growth and some international with a focus on both developed economies and emerging market economies is the way to position your portfolios.
