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Milan Cacic

July 05, 2024

Money Financial literacy Economy Commentary Weekly update Weekly commentary
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“IT'S DIFFERENT THIS TIME!”… WE'VE HEARD THAT BEFORE

The last few years have been dominated by a few large companies. Namely, Nvidia, Microsoft, Apple, Amazon, Tesla, and Meta. Without their extraordinary gains, the overall market would barely be up. In past notes we've talked about the term "revision to the mean", which means all assets will eventually return to their long-term average. Let's take a look at some history to see what happened the last time we had large caps outperform small caps by such a large amount.

 

As you can see from the chart below, the ratio of the S&P 500 [large caps] to the Russell 2000 [small caps] has not been this high since 1999. Basically, this chart is telling you that either large caps are very expensive or small caps are very cheap (or a combination of both). Regardless of which one it is, if history repeats itself, small caps should start to close the gap. As a matter fact, last time the ratio was this wide, the Russell outperformed the S&P 500 by almost 80% in the following seven years. Maybe "It's different this time" and large caps will continue to outperform small caps, but if history is any indicator of the future, then it is very unlikely.

The last few years have been dominated by a few large companies. Namely, Nvidia, Microsoft, Apple, Amazon, Tesla, and Meta. Without their extraordinary gains, the overall market would barely be up. In past notes we've talked about the term "revision to the mean", which means all assets will eventually return to their long-term average. Let's take a look at some history to see what happened the last time we had large caps outperform small caps by such a large amount.

 

As you can see from the chart below, the ratio of the S&P 500 [large caps] to the Russell 2000 [small caps] has not been this high since 1999. Basically, this chart is telling you that either large caps are very expensive or small caps are very cheap (or a combination of both). Regardless of which one it is, if history repeats itself, small caps should start to close the gap. As a matter fact, last time the ratio was this wide, the Russell outperformed the S&P 500 by almost 80% in the following seven years. Maybe "It's different this time" and large caps will continue to outperform small caps, only time will tell.

Source: Charlie Bilello 06/20/2024 https://bilello.blog

 

I have also included a piece from our CIBC economics team entitled“Political tides and the bond market”.

 

For those enjoying the Calgary stampede this year, don’t hurt yourself!

 

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

 

Have a great weekend.

 

Milan

 

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<p><span style="font-size:11pt"><span style="font-size:10.0pt">The contents of this document are for informational purposes only and are not being provided in the context of an offering of any security, sector or financial instrument, and is not a recommendation or solicitation to buy, hold or sell any security. </span></span></p>
 

The contents of this document are for informational purposes only and are not being provided in the context of an offering of any security, sector or financial instrument, and is not a recommendation or solicitation to buy, hold or sell any security.

 
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