Here’s the Thing

by JDH on February 3, 2024

The market sure looks over-extended:

The S&P 500 Index is up 126% from the pandemic lows.  It’s up 42% since the lows of October 2022.  The economy doesn’t look great.  Unemployment is increasing, inflation remains problematic, wars are ongoing, immigration is a massive problem in North America, and we are in an uncertain election cycle.  There was a big spike in yields in all areas of the curve on Friday.  And yet, the SPX is making new highs.  How is this possible?

So here’s the thing: you’ve got to put your money somewhere, and that “somewhere” is where you think you will make money.

That “somewhere” continues to be the stock market, or perhaps the Magnificent Seven on the market.  It’s the only game in town.

Here’s a stat for you: the biggest single-day market cap gain for one stock in history happened on February 2, 2024: Meta (formerly known as Facebook) was up $205.3 billion.

Facebook is a dumpster-fire.  They block all external news links on their platform, so it’s nothing more than a circle-jerk of old people with nothing to do sharing their conspiracy theories.  But, they keep using the word “A.I.”, and speculators think it’s a growth stock.  It isn’t, but you’ve got to put your money somewhere, and that’s where it’s going.

But is the run over?

Probably not.

Since the start of 2021, the Magnificent Seven (META, AMZN, AAPL, MSFT, GOOGL, TSLA, NVDA) have only outperformed the S&P 500 by 10 points (up 15% versus the rest of the market, which is up 5%).  It would appear there is more room to run, particularly since the consensus is that the Magnificent Seven will grow sales at four times the rate of the remaining S&P 493.

This all seems crazy to me, but perhaps the Big Boyz will keep the pump going until the election to get their old man re-elected.  I don’t know.

For now, I’m keeping my money in bonds, and some select stocks, and watching from the sidelines.  That’s probably the wrong choice, but it helps me sleep at night.

See you next week.