The capitalization of all publicly traded U.S. companies reached a record high of $56.9 trillion at the close of May 17 versus $51.1 trillion at the end of 2023 (up 11.4%).
Market Performance Analysis
The U.S. market is experiencing its most intense rally ever due to a combination of factors.
Exactly one month ago, the market gained almost 7% in one month - an extremely rare picture in the context of current conditions.
The last time the market's fundamental valuation deviated from the 10-year average by 30% or more was in November 2021 and March 2000.
Would it seem that 7% in one month is no big deal? But no, this has only happened twice in 25 years, and both times it marked a market high before a prolonged decline.
In 2021, this was justified by insufficiently loose fiscal and monetary conditions (zero rates and $12.5 trillion of collective QE from the world's leading CBs over two years), with the economy and corporate finance recovering on a V-shaped trajectory.
Now rates are at 25-year highs, liquidity is shrinking, and the economy is stagnant.
Contribution of Top 10 Companies
The top 10 companies accounted for $3.2 trillion, or 55% of all companies' capitalization growth, and here are the success stories: Nvidia - $1080 billion, Alphabet - $465 billion, Amazon - $345 billion, Microsoft - $344 billion, Meta Platforms - $306 billion, Eli Lilly and Company - $180 billion, Broadcom - $141 billion, Berkshire Hathaway - $129 billion, JP Morgan Chase - $103 billion, Walmart - $99 billion.
Market growth is hyper-concentrated, business valuations are inadequate, and thus the construct is extremely vulnerable.
Conclusion
Market growth is hyper-concentrated, leading to disparities and heightened systemic risks. This concentration means certain sectors or companies expand rapidly while others lag, creating an uneven economic landscape.
Current business valuation methods are inadequate, often failing to account for complex, interdependent risks in hyper-concentrated markets. This leads to mispriced assets and poor investment decisions.