One favorable aspect of the recent equity market performance is the broadening participation of asset classes other than the large cap FANGMA stocks, Facebook (FB), Amazon (AMZN), Netflix (NFLX), Google (GOOGL), Microsoft (MSFT) and Apple (AAPL). As the below chart shows, during the first eight months of 2020, the average return of this basket of stocks significantly outpaced the other asset classes shown on the chart.

Since Sept. 1, though, a broadening of performance began to take place. As the next chart shows, since Sept. 1, the FANGMA stocks' average return is negative, at -3.8%. While small-cap and mid-cap stocks are laggards in the first chart, those two asset classes have experienced a significant reversal in performance and are far outpacing the FANGMA stocks' return, as well as the S&P 500 Index itself.

Also notable is the return disparity of the Invesco S&P 500 Equal Weighted Index (RSP) compared to the S&P 500 Index, a capitalization weighted index. Again, since Sept. 1, 2020 the equal weighted S&P 500 Index is up 18.2% while the cap weighted S&P 500 Index is up 9.1%. This is evidence of the smaller companies in the S&P 500 Index performing better than the larger ones.

The rotation from the large-cap stock space into other asset classes has pushed the return of small- and mid-cap stocks to levels that far outpace the large-cap index returns. On the other hand, international stocks continue to underperform the U.S. equity asset classes, as seen below, and therein may lie the opportunity for investors.

The international opportunity is highlighted in our Winter 2020 Investor Letter that was just recently published, and touches on the benefit a weaker U.S. Dollar has for international returns.

Finally, investors should note the return in the other asset classes, like small-cap and mid-cap, has pushed their returns far above their 200-day moving average. Below is a chart detailing the small cap Russell 2000 Index (IWM) compared to the index's percentage level above its 200-day moving average. In this case, the index is 34.5% above the 200-day M.A., and this has historically been a level where a pullback might be expected.

In summary, the just-completed year of 2020 saw the S&P 500 Index increase a strong 18.4%, and this is on the back of a 31.5% return in 2019. The Index's 2020 return was narrow, though, as the FANGMA stocks accounted for 12.15 percentage points of the 18.4% total return.

Since the last third of 2020, though, a broadening of participation in equity performance has unfolded and this is a positive market factor. Of course the market will not move higher in a straight line though, so being opportunistic might be beneficial for investors.