Investing.com -- Market concentration is likely to persist in the near term, according to Barclays (LON:BARC) strategists.
The correlation between stocks is near all-time lows, both inter-sector and intra-sector, as higher interest rates lead to a need for greater alpha – returns above the benchmark – and as high valuations demand careful selection of stocks and sectors.
According to Barclays, this environment presents a favorable condition for active management as the need to outperform the market becomes more pronounced. However, investors are simultaneously facing a “correlation/concentration conundrum.”
Despite the low correlation and high dispersion indicating a variety of stock performances, the “active” investment pool beyond the top few names has diminished in size.
“We observe this in the percentage of S&P 500 constituents beating the index over the trailing 12 months, which rose to the highest level in over a year by October 2024, but fell sharply as markets turned the page to this year,” strategists led by Venu Krishna said in a note.
Expectations on Wall Street are for mega-cap technology companies to continue leading in earnings per share (EPS) growth, which suggests that concentration in these large stocks “is likely to remain high going forward,” strategists added.
The benchmark S&P 500 index rose to a new record close on Thursday, as investors weighed mixed corporate earnings and remarks from President Donald Trump.
Speaking at the World Economic Forum in Davos, Trump called for lower interest rates and oil prices while warning global businesses of tariffs on goods produced outside the US.
Wall Street’s main indexes extended their winning streak to a fourth session. The S&P 500 climbed 32.34 points, or 0.53%, to close at 6,118.71, marking its first record close since December 6, after narrowly missing it the day before.
The Dow Jones Industrial Average advanced 408.34 points, or 0.92%, to 44,565.07, while the Nasdaq Composite edged higher by 44.34 points, or 0.22%, to finish at 20,053.68.