HAD it not been for a small group of nifty companies, 2015 would have entered the history books as a terrible year for the US stock market. As it was, stocks were almost exactly flat, as were bonds and cash, meaning that US bonds and equities had their second-worst collective 12 months since 1995 — outstripped only by the disaster year of 2008.

“It’s the world of low numbers,” says Andrew Milligan, chief investment strategist at Standard Life in Edinburgh.

Yet there were some very high numbers for a group of four companies that have come to be known as the ‘Fangs’ — Facebook, Amazon, Netflix and Google — and for a slightly wider group that added Microsoft, Salesforce, eBay, Starbucks and Priceline to create the ‘Nifty Nine’. Both groups gained more than 60pc for the year.

Away from the excitement generated by these hot companies, things were dire. The S&P 500 equal-weighted index, where each of the 500 companies receives 0.2pc of the index, was down, and under-performed the S&P weighted by market capitalisation.

Such a ‘narrowing’ of the market is a classic symptom of a lengthy rally — this one has lasted almost uninterrupted since 2009 — that is coming to an end. Investors run out of ideas and instead pour money into a few companies with a positive story to tell. The under-performance of smaller companies is a sign that investors are growing more cautious.

The dominance of the Nifty Nine recalls the late 1960s and early 1970s, when a long bull market petered out into a period dominated by a ‘Nifty Fifty’ of companies such as Xerox.

Apart from a handful of stocks that are doing very well, the US markets are in a slump. Such a narrowing of investor enthusiasm has raised fears that a lengthy post-crisis rally has run its course

“Technically this feels very bearish,” says Jim Paulsen, chief strategist at Wells Capital Management. “The closest feel is the Nifty Fifty era when much of the market peaked in the late ’60s but the Nifties carried on until 1972.”

He said the performance of Amazon, which is revolutionising consumer industries, is particularly distorting, and that of the wider consumer discretionary sector — which was the best performing sector of 2015 — had a ‘night and day difference’ without it.

Part of the reason is that profits are in decline, mainly due to the problems falling oil prices have created for energy companies. “We shouldn’t be surprised, because there’s a profits recession, and in profits recessions markets become very Darwinist,” says Richard Bernstein, an investment consultant.

That Darwinism means that money flocks to the companies that can show strong revenue growth, such as Netflix — whose profits halved in the third quarter but continues to show subscriber growth — or Amazon.

Both saw their share prices more than double, as funds flooded out of companies perceived to be losing out to them and registering disappointing profits, such as Viacom and other mainstream television media groups or Walmart and other retailers.

According to Peter Atwater of Financial Insyghts, who analyses market psychology, narrow participation is a symptom of extreme nerves, as last seen during the 1990s internet bubble. Writing before the US Federal Reserve decided to raise rates last month, he pointed out that for 2015, “the top 10 stocks in the S&P 500 are up 13.9pc while the other 490 are down 5.8pc — the largest spread since the late 1990s!”

It has also grown more important to pick winners, while there are plenty of losers to choose from. Thomas Lee of Fundstrat says that he had seen Fang-like concentrations in the past, but usually the top and bottom 10 cancel each other out. In 2015, the winners far outperformed the losers.

Mr Lee warned that ‘Fang likely ends with a Dang!’ as top movers in one year have a strong tendency to underperform in the next.

Valuation trends suggest that the next move is more likely to be downwards. US stocks endured a correction during 2015, dropping more than 10pc in August as the Chinese currency revaluation sent tremors through the financial world. But, to quote Mr Paulsen, it was ‘not a pause that refreshes’.

“We did not reset valuations or refresh the profit cycle,” he says. Instead, the S&P 500 had almost regained its highs by the end of October, and US share prices, judged by a multiple of earnings, ended the year as expensive as they began it.

Telling indicators: The two critical measures that should set the market’s direction are earnings and interest rates. In the third quarter, S&P 500 earnings dropped by 0.8pc year on year, and the consensus expectation is that they will be down 3.5pc in the fourth quarter, mostly thanks to energy. Meanwhile, Europe may have hit the bottom of its own profits recession, with earnings for the Stoxx 600 companies falling 5.1pc year on year in the third quarter.

The renewed fall in the oil price has raised concerns that energy companies will be forced to write down the value of the assets more sharply. Once this damage is done, hopes on Wall Street are high for a rebound from a low base; brokers’ analysts now forecast 7.9pc earnings growth for the S&P 500 as a whole in 2016. However, equity strategists and asset allocators, who take a more top-down view, expect these numbers to be marked down considerably as the year continues. Further, earnings tend to move in cycles, and in the US the cycle appears to have turned.

“Profit margins are not going any higher, and rates aren’t going any lower, and there’s a lot of things used up,” says Mr Paulsen, whose best guess is that another flat year is in the offing. “But it’s hard to see a recession.”

Published in Dawn, Business & Finance weekly, January 11th, 2016