Hi all,
We first reached the 7400 level on the S&P 500 on May 8th. After last week’s meltdown, we’re trading at…7400. The S&P 500 is up 8% this year. The Nasdaq 100 is up 7% this year, but the Russell 2000 (our favorite overweight of the past two years) is up over 11% this year. If you would have told me these returns on 12/31/25, I would have taken it, especially following three consecutive 20%+ years. But even though the overall market hasn’t made a sustainable advance in the last 6 months, there’s still plenty of pain under the surface, especially in the semiconductor sector, so let’s take a closer look behind the scenes to try and get a little more of the real story.
- This one comes from Michael Cembalest over at JP Morgan. It’s getting harder and harder to beat the index, since fewer and fewer stocks are outperforming. Seems like someone who just owns the indexes (like you) might have been the smart one.
- This one comes from Michael Hartnett over at Bank of America. It shows that three weeks ago more dollars poured into money markets than at any other time since April of 2020. Does today’s real life environment remind you of April 2020? Not to me. Was April of 2020 a good time to buy into the fear? Of course.
- Artificial intelligence rules everything around us. Bank of America shows us the concentration of the top 10 AI stocks in the market now account for 42% of US market cap. This concentration is worrisome, and as the winds change, the market will experience several bouts of massive volatility (we’re in one now) to try and shake out stock market participants with weak hands (or too much leverage). The AI build out will continue in one form or another.
- One of the outcomes from the COVID pandemic has been our massive increase in time at home, which means time away from others. I believe this is a permanent change, not a temporary one. Our investment thesis moving forward will likely bring this into play more and more as we become increasingly disconnected from each other (and reality?).
- Bonds have not been the place to be over the last 20 years. While this may change in the future, from the chart below, we believe the trend is our friend and still continue to recommend stocks over bonds, in general. 5% on the 10-year yield isn’t going to change investor preferences in any major way, in our opinion. As a comparison, the average 10-year yield during the greatest economic expansion in US history (the 1990s) was 6%. Again, there will be shockwaves as prices and preferences change, but I don’t see higher rates as a dealbreaker for stocks…for now.
Get outside and enjoy the beautiful weather. Winter will be here sooner than we think.
– Adam