Liquidity

The US equity market has lagged those of the rest of the world by a wide margin for several years, and within our market the mega cap S&P names have lagged the small and mid caps, which are in their 7th year of relative outperformance, quite long in the tooth by historical standards. Part of the reason for the relative lack of interest in US stocks has been the relentless rise in short term rates. Our central bank has been noticeably more hawkish than the rest of the world, and money has flowed to where the money was the easiest, outside the US. As we end our tightening cycle, and others remain engaged in theirs, our market should become relatively more attractive.

In a world where global liquidity may be diminishing, relatively illiquid assets are likely to begin to loose their allure. Liquidity will become more valuable (attractive). The most liquid market in the world, the US market, will become more attractive, and within that market, money will flow to the most largest, most liquid names, which also happen to be the cheapest part of the market!

People want to buy today what they should have bought 5 to 6 years ago; call it the 5 year psychological cycle!!

Well said by Bill Miller, Legg Mason portfolio manager