Only 30 new highs this year — Week of June 17, 2024
The Few
And not very proud. Huzzahs for the S&P 500. We are just shy of a half year that the big index has posted 29 new highs. A Bull by any measure. Bulls, Bears and pigs all get old and sometimes have accidents, usually involving higher interest rates or falling earnings. No accidents here as we round the mid-year turn, but as always, we have a watch list.
So, we turn first to the Magnificent 7. Microsoft, Apple, Meta, Tesla, Amazon, NVIDIA and Alphabet (Google). Six of the seven are up well into the double digits this year. The extremes are, of course, NVIDIA at 164% and Tesla, the only loser, down 25%. One could argue the list is down to two: Meta +42% and NVIDIA. While the headlines trumpet a new high for the index, underneath the news only a few names are driving the news. Microsoft, NVIDIA and Apple now sport market valuations in excess of $3 trillion. Collectively, $9.6 trillion equates to about one-third the value of the U.S. economy. Someone is building castles to the sky or else earnings are going to beat analysts’ estimates for a number of quarters to come.
Bad breadth
Bespoke pointed out last week that the S&P rallied in seven of 10 trading days in June, while Small Caps fell in seven of 10 days. Similar divergences appear in the Dow Industrials, Transports and foreign shares. The gains in the big index are coming from fewer and fewer names recently. Through Friday, the M7 has risen 35%, while the other 493 members of the S&P 500 are up a collective 7.3%. We would take 7% every six months in perpetuity.
NASDAQ, the home to the Magnificent 7, made it five for five last week, hitting new all-time highs each day. Friday’s price action is another example of bad breadth: 21 new highs versus 163 new lows. So, while The Few mega techs do the heavy lifting, the rest of the market is not even showing up for work. The past few months remind us of the heady “dot.com” era of late 1999 and early 2000. In the land rush that was the AOL internet, mega tech ran away from the rest of the stock market. Our friendly Fed was raising rates, peaking at 6.5% in May of 2000. Earnings were getting pinched, and tech rolled over that spring, dragging the broader market down some 53% by April 2001. Let’s not repeat that.
And the Fed
Looming large over the markets, the Fed continues on its pause program from last July. As we near the one-year mark, we find the Fed’s work not complete. In past missives we noted that the Fed never beat inflation by standing still on rate moves. Last Wednesday’s meeting ended with no change in rates, holding steady at 5.25% to 5.5%.
Wrap-Up
New highs in stock markets, steady job and inflation numbers paint a second-gear picture of the economy. Declining consumer sentiment and spending, rising initial jobless claims and protests in European cities give us pause.
Our indicators and charts keep us fully invested, but we would like to see all stocks invited to the party, instead of us dancing with a few. Quarter-end options’ expiration this week may throw some extra excitement our way, but not enough to change our view.
Steve Orr is the Managing Director and Chief Investment Officer for Texas Capital Bank Private Wealth Advisors. Steve has earned the right to use the Chartered Financial Analyst and Chartered Market Technician designations. He holds a Bachelor of Arts in Economics from The University of Texas at Austin, a Master of Business Administration in Finance from Texas State University, and a Juris Doctor in Securities from St. Mary’s University School of Law. Follow him on Twitter here.
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