June 23, 2023
By Steve Blumenthal
Grab your coffee and find your favorite chair. Today’s post is short and serves as an interesting follow-up to last week’s “The Skip, The Size, And The Ten.” Just seven stocks now make up more than 100% of the year-to-date gain in the S&P 500 Index. That means the remaining 493 stocks are down for the year. I hope you find the three charts I share helpful.
Good friend Kevin Malone from Greenrock Research sent me his summary of “The Seven.” Eyes wide open, let’s go.
Reminiscent of the tech bubble days… It’s time to Party Like it’s 1999.
Here are the sections in this week’s On My Radar:
- The Seven
- The Ten
- Household Ownership and Subsequent Returns
- Trade Signals: Secular Bull and Bear Markets
- Personal Note: A Belated Happy Father’s Day
(Reminder: This is not a recommendation to buy or sell any security. My views may change at any time. The information is for discussion purposes only.)
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The Seven
I was dreamin’ when I wrote this
Forgive me if it goes astray
But when I woke up this mornin’
Could’ve sworn it was judgment day
The sky was all purple
There were people runnin’ everywhere
Tryin’ to run from the destruction
You know I didn’t even care
‘Cause they say two thousand zero zero
Party over, oops out of time
So tonight I’m gonna party like it’s 1999
Price, Album 1999 (1983)
The following data (year-to-date through 6-20-2023) is courtesy of Kevin Malone and his team at Greenrock Research.
Focus on the orange circle.
- The conclusion is stunning: 121% of the S&P 500 Index return year to date has come from just seven stocks.
- That means the other 493 stocks are down more than 3%.
- NVIDIA is up approximately 200%.
- You can see the individual performances of the seven in the YTD column.
Kevin said, “This happened once before in history. In 1998 the top 11 stocks of the S&P 500 contributed slightly more than all of the return of the index, while in 1999, it was the top 6 stocks. You may remember that this was followed by a stock market that declined for the following three years and would down 38%. More importantly, perhaps, is what happened to the top-performing stocks from the 1998-1999 period. Some today are even lower than they were then, but even the best companies took over a decade to get back to break even.”
The Ten
Here is a look at the Top 10.
- The point here is that ten stocks make up nearly 32.8% of the entire index. Four hundred ninety stocks make up 67.2% of the index.
- Look at 2023 vs. 2000.
- This is mania!
(Reminder: This is not a recommendation to buy or sell any security. My views may change at any time. The information is for discussion purposes only.)
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Household Equity Percentage and Subsequent Rolling 10-Year Returns
I shared this next chart with you last week. This week I’ve added a few comments to make the chart easier to read.
- The blue line plots the Equity ownership percentage.
- When high, investors are fully committed to stocks. When low, they had more money available to use to buy stocks.
- When the equity percentage is high, subsequent returns are low. When low, subsequent returns are high.
- Notice how closely the dotted orange line (rolling 10-year S&P 500 Index Total Return) tracks the blue line (Equity Percentage).
- Conclusion: The current high equity percentage is predicting a -0.25% annualized return over the coming ten years.
- And not only are investors all in, but they are also heavily concentrated in the top ten stocks.
(Reminder: This is not a recommendation to buy or sell any security. My views may change at any time. The information is for discussion purposes only.)
If you are not signed up to receive the free weekly On My Radar letter, you can subscribe here.
Trade Signals: Secular Bull and Bear Markets
“Extreme patience combined with extreme decisiveness. You may call that our investment process. Yes, it’s that simple.”
– Charlie Munger
Market Commentary June 21, 2023:
The History of Bull Market’s and Bear Market’s:
Each week I highlight an outlook summary that looks at the Short-term (0-3 mo’s), Medium-term (3-6 months), Cyclical Trend (6 months – 3 years) and Long-term Secular Trend (3 – 20 years) of various markets.
I think of it as a road map of sorts… a summary view of the current state of the markets. There is a lot going on in the following Market Summary chart. Here is how to view it:
- Colors: Orange is neutral (potential trend change near), Red is bearish, and Green is bullish
- Focus first on the right hand “Long-term Secular Trend – Outlook – Comments.”
- The S&P 500 Index represents equities. Perhaps nothing is more important than the price we pay for an asset (high price or low price – low is better in terms of future returns).
- You’ll see the “Valuations – PE 10” is 30.48. Historically, the subsequent median 10-year annualized returns averaged just 1.30% per year.
Channeling our inner Charlie Munger, valuations to me should be the starting place for every investment game plan. We can agree or disagree with the short-, medium-, cyclical-, and long-term secular trends but it’s hard to disagree on valuation.
With the secular picture in mind, I like to look at the short- and medium-term trend data from the perspective of timing and risk management. For example, I have a long-term fundamentally bullish view on gold. The current short-term trend in price is down (“Bear”). When the short-term price trend indicator moves from Bear to Bull, add gold.
If for example, you are overweight equities, now is a good time to reduce (and or hedge) your exposure. Set your sights on valuation levels that have historically produced 10% annualized returns. You’ll find that data in each week’s Trade Signals (further below).
While this is not a specific recommendation for you, you get the idea. It is why I lead each week’s Trade Signals with the Market Summary followed by the dashboard of indicators.
To give you a sense of how the current secular bull market in equities compares to prior secular bulls, I thought I’d share this with you next. Kind of interesting. Here you go:
Subscribers can find the chart by clicking the LOGIN button next.
You’ll also find the dashboard of indicators, followed by the charts with explanations.
Click on the “Subscribe to Trade Signals” picture to log in or sign up.
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About Trade Signals
Trade Signals provides a weekly snapshot of current stock, bond, currency, and gold market trends. We provide a summary of technical indicators to help you identify where we sit in short, intermediate, and long-term cycles. We track important valuation metrics to determine the probability of future returns (i.e. when return opportunity is best/least). Trade Signals also tracks investor sentiment indicators and economic and select recession watch indicators. Trade Signals is now a low-cost subscription service, about the cost of two Starbucks lattes every month. You can find the archive of weekly Trade Signals posts (2008 through 2-15-23) by clicking here.
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Not a recommendation for you to buy or sell any security. For information purposes only. Please discuss needs, goals, time horizons, and risk tolerances with your advisor. Investing involves risk. You can lose some or all of your money.
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Personal Note: A Belated Happy Father’s Day
I got so deep into last week’s OMR that I forgot to wish you a Happy Father’s Day! The phone calls and face times came in. I smiled. Crazy about my kids.
I hope your day, too, was filled with an abundance of love.
I’m rushing to hit the send button. I’ve been in Akron, Ohio, visiting with Bob F and his investment team. He hosted a dinner gathering last night, and we talked about the state of the markets, geopolitics, the challenges the debt and pension and entitlement present, and much more. It was a great format and a lot of fun.
By the time this hits your inbox, I’ll be halfway home to Philadelphia. Susan is in San Diego this weekend with her fellow soccer coaches and their club teams for the national finals. Loyal dog Shiloh and I will be looking forward to the game updates. Maybe a treat or two for Shiloh for every goal.
Finally, here’s a podcast recommendation for you if you are interested in learning more about AI. It’s excellent.
Have a great week,
Steve
Stephen B. Blumenthal
Executive Chairman & CIO
CMG Capital Management Group, Inc.
Private Wealth Client Website – www.cmgprivatewealth.com
TAMP Advisor Client Webiste – www.cmgwealth.com
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Forbes Book – On My Radar, Navigating Stock Market Cycles. Stephen Blumenthal gives investors a game plan and the advice they need to develop a risk-minded and opportunity-based investment approach. It is about how to grow and defend your wealth. You can learn more here.
Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management.
Follow Steve on Twitter @SBlumenthalCMG and LinkedIn.
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