Making sense of this crazy world
On Tuesday, the S&P 500 rose to a fresh all-time high, boosted by gains in key technology stocks as well as declines in oil prices and Treasury yields. It was chipmakers particularly which drove markets forward. This helped the Nasdaq reach an all-time high too.
In this commentary, we will take a look at the S&P 500 performance since reaching record highs. An argument against having an equally weighted index exposure as half the index is in bear territory. However, the earnings forecast for the next quarter is very strong, so there is a good chance of buoyant returns.
This is underlined by bumper earnings in the US over the last quarter. Price-to-earnings ratios have fallen across many markets, making them more attractive, metrics-wise.
In Europe, students and teachers have taken to the streets in France concerning poor conditions. Teachers’ Unions have joined them. We know the French are not shy when it comes to protesting, but it does create added pressure on the government’s overarching weak fiscal position. Germany’s far-right party secured a higher-than-expected majority for the parliamentary post in Saxony-Anhalt, giving it a firm foothold as it builds support to take power in a regional government.
I also reflect this week, on where we were a year ago when many with high profiles pronounced that a bubble was forming and markets were about to ‘go pop’. There has been volatility for sure, but the bubble most certainly hasn’t burst. For those moving into cash a year ago and sitting on the sidelines, there certainly has been an opportunity cost.
This week’s contents:
- S&P 500 is not quite what it seems
- Another quarter of bumper earnings in the US
- Nvidia is back
- The problems in France have implications for the bond market
- Germany has doubled its growth forecast
- Concentration and susceptibility
- The UK opportunity
- Thinking back a year
- Conclusion
S&P 500 is not quite what it seems
Out of the 504 stocks (yes, doesn’t quite add up), only 5% of stocks have reached record highs.
- 83% of S&P 500 stocks are more than 10% below their all-time high
- 51% are more than 20% below their high; bear market territory for half the index
- 14% have lost more than half their value from the top
Some of these aren’t obscure names. Nike is down 79% from its peak (a decline I wrote about recently), PayPal is down 83%, Adobe 66%, Oracle 58%, Disney 48% and UnitedHealth 38%.
So, what is driving the market? You guessed it… the Magnificent Seven. Of these seven, six are approaching all-time highs, Tesla being the outlier.
Continues…
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Our CEO, Gary Neild, writes engaging Market Commentaries every week. If you would like to receive the full version straight to your inbox every Friday, please join our communications list.
Risk warning
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.