Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., November 17, 2023.
Brendan Mcdermid | Reuters
The stock market this year has been led by just a handful of the biggest and best tech companies. It’s enough to make you question the whole idea of diversification. What’s the point of owning stocks across different sectors and industries?
Jim Cramer raised this very question in his latest Sunday column, noting that diversification was a failed investment strategy in 2023. There is no denying it.
Just look at the S&P 500 market-cap weighted index, which is viewed as a barometer of the overall stock market. This index, which gives more weight to companies’ shares with higher market values like Apple and Microsoft, has gained more than 18% this year. Compare that to the much smaller 3% year-to-date increase in the S&P 500 equal-weight index, which treats each company’s stocks the same regardless of market value.
The reason for the difference in performance? The market’s largest stocks were the biggest winners in 2023.