The current flavour of doom and gloom is rising interest rates, elevated inflation, the fear of a wide recession and the continued war in Ukraine. Despite this… global equity markets (developed and emerging markets combined) have risen in 2023. In £ sterling terms, they have delivered around 7.2% to the end of June, recovering most of 2022’s fall.
Markets are forward looking and pretty good at reflecting all information publicly available to investors in current stock prices. The chart below highlights that the forward looking market view for a very small number of stocks has been extremely positive and this has been reflected in an extraordinary and rapid upsurge in their prices. Some speculate that this may be due to the market pricing in its view on the benefits of the AI revolution for these stocks. In fact just nine companies accounted for three-quarters of the 7.2% rise in global markets this year to the end of June. The remaining stocks in the global markets delivered just a quarter of the total 7.2% rise.
Apple alone has grown by 52% since 1st January and currently has a stock market valuation of over $3,000,000,000,000 (that’s 3 trillion)… which is around two-thirds the size of the entire UK stock market.
The important thing to note is that no-one knew that the rapid rises in these companies’ stock prices were going to happen in advance. Similarly, no-one knows where they go from here. Prices move on the release of new information which is, by definition, random. It may be good news for these companies, or it may not be.
Such concentrated price moves may make some investors wish that they had held more in these stocks, but that is to succumb to the power of hindsight bias. Others might feel a fear of missing out (FOMO) and dive in hoping that recent past gains continue, succumbing to recency bias. Both are typical investor traits that we work hard to ensure you resist on your journey to financial independence and financial freedom in retirement.
As a sensible, evidence-based investor, you (our client) should simply feel glad that you have captured the market returns using the wide net of a well-diversified index and systematic funds.