There is no question that this has been a great year for Communication Services and the Information Technology sector, which are up 34.88% and 24.36%, respectively, for the year through November. Still, we are seeing cracks in these sectors with differentiation across the Mag 7. What remains the key theme to watch is the rotation into global equities and emerging markets, which are up respectively by 29.84% and 22.40% through November. These indices are beating large, mid, and small-cap US stocks by a significant margin.
Buying a broad set of US stocks is not the direction for success in the equity markets. We are seeing low correlation across US stocks and high dispersion. Investors need to be selective with their stock choices. This is a global stock-pickers market. If you are not a stock picker, you can see it in the differentials across risk premia. High beta and momentum factors are showing strong returns, while low volatility and dividend stocks are underperforming, even amid the current talk of market bubbles.