US stocks are poised to notch a seventh straight year of gains but there are signs this bull market may be long in the tooth (pun intended).
One cause for concern is the lack of “market breadth”. This occurs when the market’s performance is driven by only a narrow sliver of companies. The result is a select few stocks so dominate that they mask what is going on with the rest of the market. The large cap S&P 500, for example, is near its all time high but, on closer look, its modest ascent in 2015 is due entirely to the strongly positive average performance of the largest 90 stocks which have more than offset the negative average of the 410 remaining, smaller companies.
The tech heavy Nasdaq 100 presents an extreme case. The broader Nasdaq composite recently breached its record highs that dated back nearly 15 years ago to the bursting of the dot-com bubble. Within the Nasdaq 100, however, just four names are driving the average back toward new record highs. These four companies,Facebook, Amazon, Netflix and Google are together known by the acronym “FANG”. To illustrate, counting FANG the Nasdaq 100 is up +10% for the year. Without FANG, the Nasdaq 100 is down -5%.
