Hello, Subscribers:
One of the more interesting visuals I’ve seen lately tracks something known as Median 63-Day Rolling Stock Specific Risk. While that may sound a bit academic, its implications are actually quite grounded in the real world.
As you can see, this measure just underwent one of its most violent reversals on record, sling-shotting from the lowest level in years to near the top of its multi-year range in just a few months. Put more clearly, individual stock volatility has exploded, and with it, the dispersion of outcomes across equities. It’s a market no longer broadly driven, but is now hyper-focused on individual stock selection.
To put this in historical context, the only prior episodes of this magnitude over the past half-decade occurred near major inflection points: the post-COVID melt-up in 2021, the early stages of the 2022 bear, and again in mid-2023 when AI-mania was just revving its engines. In each instance, elevated specific risk either preceded or coincided with sharp rotations under the surface, often away from market leaders and into more idiosyncratic names.
So, what might this mean now?
For one, the passive party may be winding down. When correlation breaks down and stock-specific risk spikes, index-hugging loses its punch. This environment tends to reward active strategies, and punish closet indexers. Second, it’s a flashing yellow light for portfolio concentration.
The backdrop of the last few months, a handful of mega-caps dragging the market higher, may be giving way to something less rewarding, at least for passive, non-thinking investors. That heavily populated cohort is the most exposed to the tech sector than it has been in over 25 years as it now represents roughly half of the S&P (when including “stealth tech” like Amazon and Meta). What could go wrong?
David “The Haymaker” Hay
IMPORTANT DISCLOSURES
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David Hay is a passive owner of Evergreen Gavekal (“Evergreen”), a registered investment adviser with the Securities and Exchange Commission. As of 03/31/2025 Mr. Hay has no involvement in the day to day operations of Evergreen, nor is he involved with any investment research, or investment management performed by Evergreen. The information herein reflects the personal views of David Hay as a seasoned investor in the financial markets and any recommendations noted may be materially different than the investment strategies that Evergreen manages on behalf of, or recommends to, its clients.
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