1. We continue to receive questions about the degree to which the top 10, 25 and 50 companies in the S&P 500 Index, by market capitalization (cap), are influencing the performance of the index in the current bull market.
2. The price-only returns featured in the table are shaded in either gray or blue. The gray shaded years indicate that a broad number of stocks in the S&P 500 Index are participating in the bull market, while the blue shaded years indicate that the top 10, 25 and 50 stocks have garnered more favor from investors. 
3. We included 1998 and 1999 to remind investors of what top-heavy performance can look like at the extreme. If you recall, the climate in the equity bull market back in the latter half of the 1990s was characterized by former Federal Reserve Chairman Alan Greenspan as "irrational exuberance."
4. The bull market, as measured by the S&P 500 Index, actually began the day after the close of trading on 3/9/09.
5. From 3/9/09-7/31/17 (not shown in chart), the S&P 500 Index posted a cumulative total return of 336.02% (19.16% on an average annualized basis), compared to 442.87% (22.31% on an average annualized basis) for the S&P 500 Equal Weighted Index, according to Bloomberg.
6. Those returns suggest that this bull market has been inclusive, rather than one dominated by the biggest companies, in our opinion.

1. Today's blog post is an update of one we do on an ongoing basis. Investors can compare today's snapshot to the one we did on 6/13/17 (click here to view). 
2. Growth style investing tends to outpace value style investing when the earnings growth rates of companies accelerate faster than the broader market, such as right after the economy exits a recession.
3. In today's chart, the S&P 500 Pure Growth Index outperformed its value counterpart in four of the six periods. Growth investing topped value investing for the 15-year, 10-year, 3-year and year-to-date periods through 8/11/17.
4. The returns were as follows (Pure Value vs. Pure Growth): 15-yr. average annualized (11.72% vs. 12.75%); 10-yr. average annualized (8.51% vs. 10.99%); 5-yr. average annualized (16.67% vs. 16.10%); 3-yr. average annualized (6.55% vs. 8.77%); 1-yr. (14.24% vs. 13.27%) and Y-T-D (4.62% vs. 15.02%). 
5. As indicated in the chart, investors have clearly favored large-capitalization (cap) growth stocks over large-cap value stocks year-to-date through 8/11/17. S&P 500 Index earnings and revenue growth were both strong in Q2'17, in our opinion.
6. In Q2'17, with 459 companies having reported results, 78.2% have beat their consensus earnings estimates, according to Bloomberg. S&P 500 Index earnings were up 9.74% on a year-over-year (y-o-y) basis. Revenue growth was up 5.48% (y-o-y). The two sectors with the best showing were Information Technology and Energy. 

View from the Observation Deck 

1. Today's blog post features a snapshot of some key bond market statistics that can be used to support the theory that some of the capital currently invested in bonds, particularly bond mutual funds, could potentially shift to equities if interest rates were to rise moving forward.
2. The rise in interest rates would likely be driven by stronger economic activity, higher inflation and the gradual unwinding of the Federal Reserve's balance sheet over a number of years, in our opinion.
3. With respect to fixed-rate bonds, interest rates and bond prices tend to be inversely related. When interest rates rise, bond prices fall, and vice versa. 
4. From 12/31/06 through 6/30/17, the BofA Merrill Lynch 7-10 Year U.S. Treasury Index posted an average annualized total return of 5.31%, which exceeded the 4.70% yield on the 10-Year Treasury note as of 12/31/06 (see chart).
5. The dilemma facing fixed-rate bondholders today is the yield on the 10-Year Treasury note closed at 2.31% on 6/30/17, less than half of where it stood on 12/31/06.  
6. The aforementioned shift has been referred to as the "Great Rotation," due in part to the significant rise in total bond mutual fund assets since the end of 2006 (see chart). From 12/31/06-6/30/17, bond mutual funds reported net inflows totaling $1.36 trillion (not shown in chart), according to the ICI.  
7. To be fair, this theory has been discussed for a number of years. While short-term interest rates have risen since the end of 2015 due to Federal Reserve rate hikes, intermediate and longer-term bond yields have not.
8. With most major U.S. stock indices trading near their respective all-time highs more than eight years into the second-longest bull market in history, some investors might be wondering where the capital could potentially come from to drive stock prices higher.
9. We believe that the bond market could be one possible source of capital moving forward. Here is an overview of the level of liquid assets held by equity mutual funds (click here to view). 

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The BofA Merrill Lynch 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government in its domestic market.

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View from the Observation Deck 

1. Dry powder is a slang term referring to marketable securities that are highly liquid and considered cash-like, according to Investopedia.
2. As of 6/30/17, the value of liquid assets held by all U.S. equity mutual funds totaled $310.9 billion.
3. As indicated in the chart (year-end values), for the 15-year period ended 2016, the average value of liquid assets held by U.S. equity mutual funds was $211.0 billion.  
4. If you were to calculate an average including all of the monthly totals tracked by the ICI over that same 15-year period (not shown in chart), the average was $212.9 billion, essentially in line with the $211.0 billion average using year-end totals.
5. Since January 2001, the highest value of liquid assets held by U.S. equity mutual funds was $314.6 billion (2/28/15), while the lowest was $107.6 billion (2/28/03).

This chart is for illustrative purposes only and not indicative of any actual investment.

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