• Robert Baharian

This One Chart...The Great Divergence

The investor who says, ‘This time is different,’ when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing. - John Templeton

The divergence we are seeing in financial markets was not born from a global pandemic, rather the pandemic has accelerated the divergence. If we look at the data, this divergence between Technology stocks and Energy + Financials began just prior to the GFC. We saw Energy + Financial stocks begin to make up a smaller share of the index, and we saw technology stocks gain market share.

Technology has been on a growing trajectory since the mid nineties with a lot of volatility along the way - and a big boom/bust during the early 2000's, yet it has continued it's growing trajectory.

Today, we are seeing only for the second time where Technology stocks make up a greater share of the stock market to that of Energy + Financials. In fact, the divergence and spread right now is getting as close to as it was during the peak of the late nineties and we all know what happen after that. Going even deeper, the top five companies in the index make got close to making up 25% of the index. The previous peak was 18% in 2001.

I'm not saying this this is going to end badly - it might, I don't know. What we do know is that Energy + Financials now make up the lowest share of the S&P 500 for twenty five years. What we also know is these divergences don't last for ever.

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DRJB Pty Ltd (ACN 609 294 680) ATF DRJB Family Trust (ABN 37 914 488 689) trading as Baharian Wealth Management (AFSL 526798). Any information published on this website is of a general nature and does not consider your particular circumstances. You should seek advice from Baharian Wealth Management who can consider if the general advice is right for you. Any reference to performance through our blog is based on historical performance which is often not a reliable indicator of future performance. You should not rely solely on this material to make investment decisions.

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