If you asked me at the end of December whether I thought the S&P 500 would be up ~10% at the end of the first quarter this year – I would have said “unlikely”. And yet here we are. With the promise of (coming) interest rate cuts and continued strong economic growth (implying growth in earnings) – US equities have arguably exceeded most analysts full year targets. For we have already exceeded all but 1 of 18 full year S&P500 forecasts “experts” made at the beginning of the year.
"S&P500"
Don’t Fight the Fed…
“Don’t fight the Fed” is a popular Wall St. adage for investors. The phrase was coined by well known investor Marty Zweig in 1970. At the time, Zweig explained the Federal Reserve policy enjoys a strong correlation in determining the stock market’s direction. Fast forward ~50 years and his theory has proven mostly correct.
Money Supply is Expanding: Fuel for Stocks
When the supply of money expands – it’s typically very good for stocks. For example, the S&P 500 index is said to appreciate at an average annualized pace of 14.02% when liquidity expands. However, when it contracts, that gain was only around 7.0%. Today money supply is once again expanding after one of the largest contractions in recent history. This has the potential to be very good for investors. As they say, it’s always easier swimming with the tide.
Something Doesn’t Add Up…
It’s Nvidia’s world and we’re living in it (if you believe the stock market). The S&P 500 (and Nvidia) recorded all new highs post the AI chip maker’s earnings. Be careful paying too much. The rapid rise in Nvidia’s market cap has only seen the market narrow further. And from mine, that makes it more subject to both volatility and risk. Deutsche Bank’s Jim Reid dimensioned the risk another way. He shows how the Top 10% of stocks in the S&P 500 constitute ~75% of the total capitalization. We have not seen that since 1929! The only other time we saw something similar was the dot.com bubble…
For a full list of posts from 2017…