The S&P 500 has seen a remarkable bull market, climbing over 20% in 2024, yet this growth has been heavily driven by just a few large-cap stocks, namely Apple, Microsoft, and Nvidia, which together account for over 20% of the index's value. This concentration is the highest since the 1960s and raises concerns about sustainability. A recent analysis indicates that as U.S. money supply growth accelerates, smaller companies may start to outperform, leading to a potential shift in market dynamics. Following a period of tightening monetary policy, M2 money supply is now on the rise again, suggesting that smaller firms could benefit from increased access to capital. Investors might consider strategies like investing in equal-weight index funds or small-cap stocks, as these options may provide better returns when market concentration begins to decline. The article also highlights the valuation discrepancies between small-cap and large-cap stocks, indicating potential for growth in the smaller segment.
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