Market Concentration & the Presidential Cycle

MARCH 31, 2023

The single most emblematic statistic for the quarter, computed by Carl Quintanilla, is that Apple, Nvidia, Microsoft, Meta, Tesla, Amazon, Alphabet, Salesforce, and AMD contributed 160% of the total S&P 500 gain, which means that it would have been negative without them.

Three stocks, Apple, Nvidia (partly fueled by Artificial Intelligence excitement), and Microsoft alone contributed 91% of the gain.

These were Nasdaq (and S&P 500) stocks, but even within Nasdaq only three quarters of the stocks advanced while a quarter fell below their 100 day moving averages. By the end of the quarter, all the money that had been taken out of technology companies since August 2022 had been put back in, but this time into far fewer names. Conversely all the money that had flowed into energy had been withdrawn.

While mega tech was soaring, venture capital funded companies without positive earnings were crumbling, just as we had predicted in our WSJ article a year ago….

[Recent] ups and downs may also have been influenced by the presidential cycle. Historically, government stimulus has made the half year following U.S. midterm elections a particularly good time to be in the market. This continues to a lesser degree right up to the presidential election. No Fed has ever tightened in the six months preceding a presidential election. On the other hand, radical stimulus has now become an all years, all the time phenomenon, which has made this kind of analysis less useful.