Five percent.
It’s not a bad start to the year.
When you consider the historical average return is just under 10%… a 5% return in less than four months is pretty good.
In which case, what is there to worry about?
Here’s the problem.
The average is… well… an average.
It means that some years are better and some are worse.
So where does that leave you? Do you keep your money in the market, assuming the market will go higher? Or do you cash out now and count yourself lucky if the market goes south?
We’ll share our take below. But first…
Market Data
The S&P 500 closed up 1.2% to end the day at 5,070.55… the NASDAQadded 1.6% to close at 15,696.64.
In commodities, West Texas Intermediate crude oil trades at $83.32 up 30 cents…
Gold is $2,336 per troy ounce, down $7 from yesterday…
And bitcoin is $66,264, down $412 since yesterday.
And now, back to our story…
Don’t Buy “Mag 7” Stocks
Before we go any further, we should remind you that we’ve suggested for the past month or so that, at the very least, you reduce your exposure to stocks.
We certainly don’t recommend selling everything. A strong large-cap portfolio… especially one with healthy dividend payers… will do well for you over the long term.
But for growth stocks… such as the mega-cap tech stocks… we recommended taking some profits.
As you can see from the chart below, that was good advice:
Source: Yahoo! Finance
Only two of the Magnificent 7 stocks have gained over the past month: Alphabet (GOOG) and Amazon (AMZN). The rest are down. Tesla (TSLA) and Nvidia (NVDA) have fallen the most by nearly 17% and 16% respectively.
And in our view, there’s good reason to worry they could fall even further. Last week Netflix (NFLX) informed the market it would no longer disclose subscriber numbers, and neither would it disclose average revenue per member.
Of course, it’s obvious they would have to stop reporting both. If they just stopped disclosing subscriber numbers, it wouldn’t take an MIT grad to calculate an estimate by dividing the company’s total revenue (which it has to report) by the average revenue per member.
Anyway, Netflix has argued these numbers aren’t relevant anymore, as the company has “evolved,” whatever that means.
The cynic… or the realist… would argue they’re no longer reporting the numbers because Netflix has hit “peak subscriber” numbers. Growth is over. Now they have to figure out how to further monetize existing subscribers, or as we suspect, it will have to innovate into new products and business lines.
For a company that’s a one-trick pony, any diversification into another business is bound to be risky. Just ask Meta Platforms (META) with the whole metaverse debacle, which cost the company around $12 billion.
It was such a debacle that the company is left with a company name that it no doubt would now like to ditch – Meta – and revert to the Facebook company name.
We’re not the only folks out there to be cautious. Even the big Wall Street firms are cautious. As Yahoo! Finance reports today:
“Price action may depend on earnings and could stabilize near-term,” JPMorgan’s chief market strategist Marko Kolanovic wrote in a note on Monday.
“Beyond this, however, we think the sell-off has further to go. We remain concerned about continued complacency in equity valuations, inflation staying too hot, further Fed repricing, and a profit outlook where the implied acceleration this year might end up too optimistic.”
Again, we’re not saying sell the farm and put everything in cash. But cutting exposure to stocks still makes as much sense today as it did a month ago.
And as for that long-term average of nearly 10% for stocks… our bet is today’s 5% is as good as it gets for the rest of the year.
That market peak we saw at the end of March? That’s it. It’s done. We’re not necessarily saying 2024 will be a down year for the market – although it could be.
But rather, we’re saying at best the market trades sideways from here, and the mega-cap stocks continue to do worse than anything else.
Cash in the bank at 5% or so looks like a pretty good option right now.
More Markets
Today’s top gaining ETFs…
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Alpha Architect U.S. Quantitative Momentum ETF (QMOM) +3.5%
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ProShares Ultra QQQ (QLD) +3%
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Invesco S&P SmallCap Consumer Discretionary ETF (PSCD) +3%
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First Trust RBA American Industrial RenaissanceTM ETF (AIRR) +3%
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Invesco Dorsey Wright Technology Momentum ETF (PTF) +2.8%
Today’s biggest losing ETFs…
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VanEck Steel ETF (SLX) -2.1%
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iShares MSCI Global Metals & Mining Producers ETF (PICK) -1.3%
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iShares U.S. Basic Materials ETF (IYM) -1%
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Materials Select Sector SPDR Fund (XLB) -0.9%
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iShares MSCI China A ETF (CNYA) -0.8%
Cheers,
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Kris Sayce
Editor, The Daily Cut