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Key inflection points in market behavior in 2023

May 8, 2023

2023 has witnessed some key inflection points and reversals in market behavior compared with the 2022

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Narrowing of market breadth

2023 has witnessed some key inflection points and reversals in market behavior compared with the 2022. One of the most notable shifts has been the resumption of deteriorating market performance dispersion. Exhibit 1 shows that 2022 saw the equally-weighted FT Wilshire 5000 significantly outperform the market cap weighted index but 2023 has seen this pattern reversed.

 

Exhibit 1: The Equally weighted index has started to underperform its market cap peer.

Source: FT Wilshire

The median stock has also started to lag the top 10 stock return

Another gauge of market performance dispersion is the comparison between the return of the median stock with that of the aggregate return of the top ten stocks. Exhibit 2shows that 2022 saw the median stock outperform by c.10% but so far 2023 has seen a significant reversal with the top 10 stocks outperforming by more than 20%.

Exhibit 2: Comparing the performance of the median stock to that of the top 10 stocks

 

Source: FT Wilshire

 

A major reversal in style rotation

Another key dynamic of market rotation in 2023 has been the reversal in Style performance.

Exhibits 3A &B3 show the scale of reversal in the Growth v Value and Large cap v Small cap relative performance in 2023 .

Exhibit 3A: 2023 has seen a strong rotation back to Growth style v Value

Source: FT Wilshire

 

Exhibit 3B: 2023 has seen a strong rotation back to Large cap v small cap style

Source: FT Wilshire

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