Stocks are up… again.
That’s no reason to complain.
While the market’s “perma-bears” (those who constantly predict a market crash) have warned about a crash for the past two years…
Stocks are higher than ever.
No joke. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite indexes are all at or near all-time highs.
The only major U.S. index not at a peak is the Russell 2000 — the “small-cap” index.
That’s why we say, despite what may be the late stage of a bull market, there are still opportunities for investors to wring more from this market.
More below, first this…
Market Data
The S&P 500 closed up 1.1% to end the day at 5,175.26… the NASDAQ gained 1.5% to close at 16,265.64.
In commodities, West Texas Intermediate crude oil trades at $77.79, down 30 cents…
Gold is $2,161 per troy ounce, down $26 from yesterday…
And bitcoin is $71,370, down $726 since yesterday.
And now, back to our story…
Don’t Be a Perma-Bear
We admit to growing tired of “perma-bears.”
We’ve mentioned before how following their advice is one of the biggest investment mistakes you can ever make.
They’ll bleat for years on end about how the market is set to crash even as stocks grind higher and higher. Then, eventually, when the market falls, that’s when you’d hope they’ll give you some buy advice.
Except, they never do.
For them, the market is never cheap enough. If it falls 30%, they’ll tell you it has to fall 50% before it’s a good value…
If it falls 50%, they’ll tell you it has to fall 60% before it’s a good value.
And if it falls 60%… well, you know the rest. And even when it’s clear the market is in a new uptrend, they’ll warn you “not to believe it,” or that it’s a “fools rally,” or some other nonsense.
We’re certain you have experience of that. It’s such a waste.
That’s not to say you should just blindly keep buying the market at any old price. That doesn’t make sense either.
But it does make sense to take a little profit off the table here and there. Especially in what appear to be over-heated stocks and look for opportunities in beaten-down or less heated stocks.
We’re not the only one to think that way. We note the following from Bloomberg today:
The stock market is ripe for a correction with the Magnificent Seven-fueled rally significantly overdone, according to Ariel Investments’ founder John Rogers Jr., who correctly forecast the U.S. avoiding a recession in 2023 and the market’s buoyant rally.
Relative to history, large-cap growth stocks like Nvidia Corp. are overpriced, with earnings expectations ahead of themselves, Rogers said in an interview in Bloomberg’s Chicago office. That said, he views the market’s recent surge to all-time highs on artificial intelligence-driven investor enthusiasm as reminiscent of the bursting of the internet bubble in 2000.
We’ll pause here. We’re not quite as convinced about the comparison to the dot-com bubble. When you look back at that period, there were a bunch of companies that came out of nowhere… no revenues, no profits, and barely any products to sell.
Those valuations were outrageous. Today, the so-called “Magnificent Seven” stocks are big companies with big revenues. Check out the table below:
Data Source: Bloomberg
That’s nearly $1.8 trillion in annual revenue. This is not dot-com-style revenue.
However, it seems as though Mr. Rogers agrees with us on his next point. The Bloomberg story continues:
While the Magnificent Seven drove most of the S&P 500 index’s gains in 2023, Rogers noted that smaller company stocks began to rise in the fourth quarter.
And, according to the 40-year industry veteran, small and mid-cap shares are what investors should want to buy. Much like during the burst of the internet bubble, small and value investments present an opportunity, he said.
This makes complete sense. And, it’s not unusual to see smaller (and arguably, lower quality) stocks perform well during the late stages of a rally.
For the simple reason at some stage in the rally, investors begin to do exactly what we figure they’re starting to do now… which is to question the prospects for further gains in big stocks.
Investors will start “looking down the list.” They’ll try to figure out which companies may be competitors… that could offer better products or services… or those companies that could be potential takeover targets.
The big unknown, of course, is when that switch will happen, and to what extent those smaller stocks will outperform the bigger stocks.
But our job is to try to figure that out. We’ll dig deeper into this idea tomorrow.
More Markets
Today’s top gaining ETFs…
-
VanEck Semiconductor ETF (SMH) +3.2%
-
ProShares Ultra QQQ (QLD) +2.9%
-
Global X MSCI China Consumer Discretionary ETF (CHIQ) +2.9%
-
iShares MSCI Chile ETF (ECH) +2.3%
-
Alpha Architect U.S. Quantitative Momentum ETF (QMOM) +2.3%
Today’s biggest losing ETFs…
-
VanEck Gold Miners ETF (GDX) -1.8%
-
SPDR Kensho Clean Power ETF (CNRG) -1.7%
-
Global X MSCI Colombia ETF (GXG) -1.3%
-
SPDR Gold Shares (GLD) -1.1%
-
iShares Gold Trust (IAU) -1.1%
Cheers,
 |
Kris Sayce
Editor, The Daily Cut