- Just seven stocks prop up the S&P 500
- What we can learn from the dot-com bust
- James Altucher: Stocks “trapped in sideways consolidation”
- Uncle Sam’s default date
- Tax increases to own the libs?… The shortage of “mental resilience”… Readers on trade-offs in Nordic countries… And more!
Now it’s just seven stocks propping up the entire S&P 500.
A week ago yesterday, we told you how only eight companies were keeping the index in the green so far during 2023 — the “FAANG” stocks (Facebook, Apple, Amazon, Netflix, Google) along with Microsoft, Tesla and Nvidia. According to figures from Bianco Research, the other 492 companies as a group were in the red.
The mainstream is waking up: “A small number of tech companies are driving an ever-increasing share of the U.S. stock market’s gains,” said the Financial Times yesterday, “prompting concerns among investors about the sustainability of the rally.
“The S&P 500 has risen 8% so far in 2023, but 80% of the increase has been driven by just seven companies, according to Bloomberg data.”
By this calculation, Netflix has dropped out of the elite club — its performance merely equaling the S&P year-to-date.
As we said last week, this sort of concentration is not the sign of a healthy bull market.
Similar concentration showed up toward the end of the dot-com bubble in 1999–2000. Back then, it was Microsoft, Intel, Dell and Cisco soaring higher while the rest of the market just plodded along. Then the bubble burst and the S&P sold off nearly 50% by late 2002.
More recently — and as we chronicled at the time — it was only Apple, Microsoft, Google, Amazon and Facebook propping up the market in 2017. The S&P cratered nearly 20% in 2018.
And this same degree of concentration made itself evident in late 2021 — before the S&P took a 19.4% spill in 2022.
Reminder: At just over 4,100 this morning, the S&P still languishes 14% below its all-time highs notched on the first trading day of 2022.
So it’s disturbing to see this harbinger show up again so soon… suggesting another down leg in the months to come. And it’s even more disturbing to think these multiple down legs are how the near-50% dot-com bust played out.
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While the S&P 500 fell 19.4%, Zach put his own money to work in the Income Matrix… and generated a 190% return.
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Zach first began applying elements of this strategy during his hedge-fund days, when he was managing $20 million portfolios for some of America’s richest families.
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In a weirdly delayed reaction to the demise of First Republic Bank, it’s turning into a risk-off day for the markets.
As we write, all the major U.S. stock indexes are down about 1.5%, give or take. The S&P has now cracked below 4,100… while the Nasdaq is in danger of breaking below 12,000. The Dow began the day over 34,000, but at last check it’s below 33,500. The KBW Bank Index is down over 5%, now sitting at its lowest levels since late 2020.
Hot money flooding out of stocks is flooding into gold. The Midas metal has powered $29 higher to $2,011, while silver’s up 31 cents to $25.26.
Treasuries are benefiting too — prices up, yields down. The yield on a 10-year Treasury note is back under 3.45%.
Crude is getting crushed and is once again sniffing out an impending recession — down over three bucks to $72.47, the lowest since late March.
Bearish developments notwithstanding, futures traders still assign an 85% likelihood the Federal Reserve will jack up the fed funds rate another quarter percentage point tomorrow.
The stock market’s sideways chop in recent weeks is no surprise “when you dig into the first-quarter earnings for S&P 500 companies,” suggests James Altucher to readers of his Weekly AlphaBrain trading advisory.
“While the first-quarter 2023 earnings season is off to a better start relative to the last two quarters,” he says, “the number of companies reporting positive earnings per share surprises and the size of those upside surprises is below the five-year average.”
What’s more, the disappointments are showing up most often in health care, technology and communications services — the very sectors where Wall Street traders want to see outperformance.
Valuations are also proving problematic: “The forward 12-month price-earnings ratio on the S&P 500 is 18.2,” says James. “While that ratio is below the five-year average of 18.5, it’s above the 10-year average of 17.3.
“Worse still is that with most analysts expecting a recession to begin later this year or during the early months of 2024, there’s no reason for investors to pile into new investments when valuations are running close to fair value (based on a five-year average).
“The bottom line is stocks are trapped in sideways consolidation because investors don’t feel compelled to make new investments or sell their existing ones.”
If there’s a looming catalyst for them to sell — aside from worries about the banks — well, read on…
Hard telling how much of it is real and how much is political theater… but Treasury Secretary Janet Yellen says Uncle Sam is in danger of default as early as June 1.
With Congress at odds over how to raise the debt ceiling, the Treasury has been resorting to accounting tricks since Jan. 19 to stay below the ceiling — now $31.4 trillion.
The tricks work for only so long, however. Until now, the thinking was the clock would run out in late July or early August. But no, Yellen says it’s June 1 — less than a month away. The White House and congressional leaders have a meeting scheduled for a week from today.
So it’s shaping up to be another down-to-the-wire proposition like in the summer of 2011, when the stock market skidded nearly 17% in 17 days.
As you might be aware, the Republican-controlled House passed a debt-ceiling bill last week with budget caps stretching out for the next 10 years. It doesn’t stand a prayer of passage in the Democrat-controlled Senate, but it’s an opening gambit for negotiations.
What you might not be aware of are some of the peculiar tax-and-spend provisions in the GOP bill.
The Congressional Budget Office projects the bill would raise taxes by $300 billion over a decade — because it would repeal the green-energy tax credits tucked into last year’s misnamed “Inflation Reduction Act.” As The Wall Street Journal puts it, “Republicans are less focused on official tax tallies and more determined to reverse Mr. Biden’s agenda.”
Tax increases to own the libs — that’s your 2020s Republican Party for you.
It gets better: To ensure enough GOP votes from corn-state members for passage, House Speaker Kevin McCarthy stripped the bill of a provision that would have cut subsidies for biofuels and ethanol. “Iowa’s delegation helped provide the vital votes to push [the bill] to approval,” reports the Des Moines Register.
We’re hard-pressed to come up with two better examples of why our approach to politics around here is “a pox on everyone.”
So it’s not just young kids whose education and development was stunted by COVID lockdowns.
The Financial Times has a fascinating/disturbing story about the newest recruits to the British accounting and professional services biz: “Deloitte and PwC are giving extra coaching to their youngest U.K. staff after noticing recruits whose education was disrupted by lockdowns have weaker teamwork and communication skills than previous cohorts.”
Simply put, they’re having more trouble adapting to office culture than those who came before — struggling to deliver presentations or even speak up during meetings.
“This means that there is a greater need for employers to provide training on basic professional and working skills that wasn’t necessary in prior years,” says Deloitte’s Jackie Henry.
Among the steps the firm is taking — a week-long training program for newbies with sessions on what Henry calls “mental resilience, overcoming adversity and the importance of mindset.”
Coming soon to a white-collar workplace near you, apparently…
And you thought the pre-pandemic twentysomethings were snowflakes!
To the mailbag… and a surprisingly large amount of feedback after our Saturday edition about the trade-off in Nordic countries — lots of social services, with a high tax burden to match.
“I’d be happy to support hygge taxes in the U.S. Better education, better health care, safer streets, etc.,” says a reader’s short email.
“For this Wild West American Yankee,” counters another, “I prefer my personal independence where thinking is an option and often required.”
“We are far more devious than those Scandinavians,” says a third.
“We tax with hidden taxes, state taxes, local taxes, special taxes, property taxes, inventory taxes, license taxes, use taxes, travel taxes, road taxes, bridge taxes and a list even longer than this. It’s all about the total, total tax.”
The 5: “If you try to sit, I’ll tax your seat. If you get too cold, I’ll tax the heat…”
“I came to Norway in the ’70s and have watched it change,” a reader writes with ground-truth perspective.
“They invited about 200 American oil field divers. Several were killed due to the poor quality of the dive teams we had to piece together. America led the way in deep-sea diving, and so little was known about deep cold-water diving, but the pioneering American divers shared the knowledge they possessed. By the early ’80s, the deep diving craft training was more International. An all-American team had laid the first pipeline across the 1,650-foot-deep Norwegian Trench. Many (like myself) were ex-SEALs from the Vietnam War.
“Norway is now a wealthy country and home to over 20% of immigrants lured by the riches of Scandinavia. They passed a law a few years ago that all in-country flights must be with electric jet engines by 2040. They are making stunning progress and have now developed electric jet engines 3.5 times more powerful than petroleum jet fuel engines. In Oslo, Norway, more than 50% of cars are electric, as in Tesla.”
“Throughout the world, many people are fascinated with Scandinavia and wish their own country would follow this example, but the Nordic context is very peculiar and most often impossible to replicate,” writes a reader from Paris.
“Scandinavian countries are small and up to very recently, 100% of their population was white and Protestant. The national characteristics are a strong consensus-based culture, a lot of discipline and social control, strong work ethics and overall a strong social cohesion. The high degree of egalitarianism is a distinct Scandinavian trait.
“I lived in the USA. It’s a continent-size, culturally and ethnically very diverse country. The vibrant energy of the American society is based on fierce internal competition. Scandinavian-level taxation couldn’t work because it would stifle the economy without obtaining Nordic efficiency.”
The 5: There’s something to be said about the Nordic countries’ modest population size. “The most successful states in the world, by a great variety of measures, are indeed small, most in the range of 3–7 million people,” wrote the American author Kirkpatrick Sale in 2014.
“Whether measured by per capita wealth, political freedom, health, happiness or sustainability, nations in this range rank at the top and have done so since such measures were first developed.”
Now in his 80s, Sale put his money where his mouth is over the years — supporting U.S. secession movements like the Second Vermont Republic.
We’ll have more reader feedback on the Nordics tomorrow — including a reminder that in some ways, they’re freer than Americans. (And we’re not just talking about how they avoided lockdowns in Sweden…)
Best regards,
Dave Gonigam
The 5 Min. Forecast
