What Goes Up May Not Come Down, But it Has a Low Sharpe Ratio

Harry MamayskyAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

It was a heck of a year for stocks. In 2023, tech led the way with a return of over 40%, leading to concerns about overvaluation in the sector. Nonetheless, past sector booms have been associated with volatile, but on average positive, future returns.

As I wrote recently, the drop in inflation and gentle slowdown in growth over the last few months provide a good backdrop for risk assets. So good, in fact, that the overall stock market and some sectors – like technology – are hovering near or at their all-time highs. The tech catalysts are well-known: excitement about AI, work-from-home trends, and strong profitability. The next chart shows the returns of U.S. stock market sectors over the last six years. The last 12-month (LTM) return is indicated in the legend, as well as the decile for the LTM return.

sector returns