The market rally has occurred without much help from FAANG stocks (Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Google (NASDAQ:GOOGL)). Financial media, with the typical hunger for a story, asks, “Can the market rally without Apple (AAPL).” The entire FAANG group is frequently suggested as an alternative proposition.
The question rests on the hoary market concept of “leadership.” In order to simplify the daily news, financial pundits create armies of bulls and bears. These require stocks that are leaders and bellwethers. This makes for interesting news, but it has little basis in fact.
My research shows significant over-valuation at the top of the S&P 500. This has been exacerbated by market-weighted ETF trading. As the over-valued leaders are replaced, sometimes involving a dramatic fall, the underpriced stocks outperform. This has been a beacon for our own stock picking. I suspect that readers will be surprised by this chart. It shows the top ten members of the S&P 500 for almost 30 years, advancing the list in five-year increments. Please consider the turnover.
