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2023 Mid-Year Market Outlook

Financial Decoder

CHAPTER

The Consequences of a Cap Weighted Index

The stock market has been a pretty good year so far but most of the gains have been concentrated in the biggest companies. The problem arises when the majority of other stocks other than say the top 5 or top 10 are significantly underperforming the market. So be careful about either chasing outsized returns or by virtue of not rebalancing letting your own portfolio become overly exposed to a small handful of names because at some point there will be a reversion to some semblance of a of a mean even if it's a benign type convergence of larger cap names giving way for broader participation down the cap spectrum.

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