Through the Decades, We See the Market’s Shifting Preferences
By Gordon Scott, portfolio manager of Fidelity Export and Multinational Fund
Size, as measured by market capitalization, has historically been a mixed blessing in the equity markets. On the one hand, the largest market caps tend to reflect past financial strength and avid investor interest. On the other hand, they often imply lofty market expectations that prove difficult to live up to. I recently reviewed research comparing the most valuable global companies at the end of each decade going back to 1980. Interestingly, only one firm was able to remain in the top 10 in every period, and it was a close call in both 1990 and 2017.
Through the decades, we see the market’s shifting preferences. For example, the 10 largest companies in 1990 were almost exclusively Japanese, reflecting what we now recognize was an asset bubble in that nation. Similarly, global telecom and U.S. technology companies dominated the list near the peak of the internet bubble in 2000. By 2010, the top 10 included oil and mining giants, reflecting China’s emergence onto the world stage.
In each case, the prevailing theme was powerful but temporary. The 1990s ended up being a ‘lost decade’ for Japan, the 2000s saw the unwinding of the tech and telecom bubble, and commodities underperformed the market following 2010, with crude oil briefly dipping below $30 per barrel in the wake of the shale revolution. It has proven very difficult for ‘winners’ to stay on top.
As of August 31, the top-10 list is dominated by internet and technology companies. Perhaps even more importantly, the technology sector accounts for a disproportionate percentage of the U.S. stock market (25% of the S&P 500) and is close to its weighting in 1999, just before tech stocks imploded. Once this technology cycle has run its course, I think we could see conditions supporting better relative performance for dividend-paying stocks.
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