What I Learned This Week

Concentration in mega-cap U.S. stocks is now higher than at any time in the past 20 years. Will there be a reversion to the mean?

Over the last two decades, the two largest companies in the U.S. market averaged roughly 57% of the total market cap of small-cap stocks, but at the end of Q3, this had risen to 92%, according to Royce & Associates. This measure is now more than three standard deviations greater than their long-term historical average, and given the apparent faltering momentum of the mega-cap FAANG stocks, could mark a noteworthy inflection point that will raise sentiment toward the long-abandoned small-cap and value-oriented shares. Largest Two U.S. Companies as Percentage of Russell 2000’s Total Market Cap, September 30, 1999, to September 30, 2019 Source: Royce & Associates H…

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