The S&P 500 recorded a 23.3% gain for 2024. For the first time since 1998 – posted two consecutive years of gains above 20%. Not bad right? Well if we extend our time horizon to include 2022 – the market’s CAGR is just 7.2% (below its long-term average of ~8.0% exc dividends) Mmm. Not as good. And over 5 years – the S&P 500 CAGR is is 12.7%; and over 10 years its 12.4%. It’s important we measure results over a period of at least 5 years (preferably 10). 2-3 years is a very short amount of time… where all kinds of distortions will happen. But over time – these distortions are always corrected. My point? Things always mean revert… and one should never ‘cherry pick’ dates to fit a narrative.
"Valuations"
NVDA: What Do You Pay for Growth?
2024 will go down as another great year for stocks in the trader’s almanack. However, what won’t be recorded is just seven stocks comprised ~54% of the S&P 500 total gains (~24% with two trading days remaining). It’s a bit like golf – you only need to record the final score – not how you did it. However, the how matters (not just the ‘what’). This post will address the question of what to pay for one the most popular stocks today – Nvidia (NVDA). The asking price is $137 at 32x forward earnings. But does that represent great value given its growth assumptions?
Inflation x Rates = Uncertainty
The stock market could not be more optimistic. And perhaps not since the dot.com bubble of 1999 – have investors been so sure of the future. Excited by a business friendly government coming to power; lower inflation; consumers continuing to spend – what’s not to like? I can think of one thing…. valuations. If buying stocks today – you’re paying through the nose. And for me – that increases your risk.
Price vs Value
Markets could not be more optimistic about the future. We see it with consumer sentiment, spending and in the stock market. For example, the S&P 500 surged to a new record high 6090 – far exceeding the most bullish of forecasts from 12 months ago. Will analysts be equally bullish about 2025? Post Trump’s Nov 5th win – the bulls have found another gear. Trump has painted a compelling vision of a US economic resurgence built on three primary pillars: (i) lower taxes; (ii) sweeping deregulation and government reform; and (iii) an
emphasis on domestic production. Why does this have corporate America very excited?
For a full list of posts from 2017…