If you feel like the media has only talked about a handful of companies over the past decade, then you are probably right. When we look at 5-year annualized returns of different asset classes, we notice that large-cap growth has been at the top of the table for eight out of the last nine years, while commodities and bonds have occupied the bottom. As you can see from the chart below, starting in 2015, the P/E of dividend stocks began dropping relative to the S&P 500. We made a bottom in 2020 but have not recovered much and are still trading at a very low historical average.

Most people believe that, at some point, there will be a revision to the mean, meaning either the large-cap growth stocks will come down, value plays will start to increase, or a combination of both. We experienced a similar market in the 1970s. Back then, there was a group of companies called the "Nifty 50" which also drove the market to new highs. The value premium of the top 50 stocks over the bottom 450 stocks in the 70s was 90%. This time around, we’re only sitting at a 32% premium. This doesn't mean that we will get back to the excessive valuations that we experienced in the 70s, however it does mean that it's possible these large-cap growth stocks could continue to move further in 2024. One thing we know for sure is value stocks, cyclical stocks, and bonds are cheap. At some point, they will outperform.

I've also included a piece from our CIBC Economics team entitled "Grading on an Easier Curve”.

As always, if you have any questions, please feel free to give us a call at any time.

Have a great weekend.

Milan