Over the past 12 months, the S&P is only a tad behind the EAFE index of foreign stock markets. Year to date, it’s ahead--although it still lags behind the rest of the world since the inauguration by about 10 percentage points.
Like almost everything in the stock market, in my experience, this is good news …and it’s also bad news. The Financial Times points out in today’s issue that US-based investors have pretty much abandoned the domestic bond market in favor of stocks, thereby helping the S&P along. This is because the market believes that the goal, though unstated, of the administration in Washington is to “solve” the issue of Federal indebtedness by creating inflation that will reduce the real value of our repayment obligations. The next chapter in this story will open with the arrival of Trump’s hand-picked Federal Reserve head (approved by Congress), whose mandate is presumably to make this happen.
If we look at the S&P, it’s up by 23% over the past 12 months. IT and Communication Services are ahead by around 43%. These two sectors make up 45% of the overall S&P market cap. This implies, in rough terms, that they have contributed 19 of the 23 points the S&P has gained this past year. The rest of the market, then, the part that represents the US as a place, is ahead by only 7%.
The Energy sector is up by 46%+ so far this year, thanks to Trump’s attack on Iran, but Consumer discretionary is barely in positive territory. ICE and tariffs, the centerpieces of the Trump agenda, are the culprits, I think, and there isn’t a peep of opposition from either party in Congress that might signal that better times are on the way.
All in all, I get the point that IT is what might be called a crowded trade. But where are the alternatives? Typically, you’d gradually roll out of the strong-performing sectors into laggards. But given how the administration seems to be breaking everything in sight, these seem distinctly unattractive.