May 22, 2023
Investors aren’t happy, but stocks are up.
If you ever participated in a fantasy football league, you may have experienced a run on a position during your draft. One person picks a kicker or defense mid-round and, suddenly, almost everyone rushes to follow suit. A similar occurrence may be happening in the United States stock market.
While major U.S. stock indices are in positive territory year-to-date, market gains have been concentrated in just a few companies’ stocks. Al Root of Barron’s explained:
“Today’s five biggest stocks…have a combined market cap of about $8.7 trillion, almost 25% of the S&P 500 [capitalization (cap)] and about 3.2 times the $2.7 trillion Russell cap…What’s more, those top five stocks have returned an average of 50% in 2023, accounting for roughly 80% of the S&P 500’s 8% gain. The median stock in the index has gained less than 2%, and less than half are trading above their 200-day moving averages…The top five stocks are also expensive: They trade for an average of 31 times estimated 2024 earnings, while the index trades at 17.4 times earnings.”
The fact that five stocks have been driving market performance may be hurting investor sentiment, according to sources cited by Barron’s. Sentiment also has been affected by concerns about inflation, tightening credit conditions, the possibility of recession, and the chance the U.S. may default on its debt. Investor sentiment is the way investors feel about an asset or financial market. When investors are feeling pessimistic about stocks, stock markets tend to fall. Similarly, when investors are optimistic, stock markets tend to rise.
Bank of America’s latest survey found that sentiment among global asset managers is the most bearish it has been this year. Almost two-thirds of participants think economic growth will slow this year, although a similar number anticipate a soft landing for the global economy, reported Ksenia Galouchko of Bloomberg.
Last week, the Federal Reserve signaled the end of rate hikes was near, which pushed major U.S. stock indices higher. The indices gave back some gains on Friday after debt-ceiling talks faltered but finished the week higher overall. The yields on most maturities of U.S. Treasuries moved the week higher.
Weekly Focus – Think About It
“You’ll never find a rainbow if you’re looking down.”
—Charlie Chaplin, comic actor
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* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
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https://www.barrons.com/articles/the-5-stocks-that-rule-this-marketand-make-investors-nervous-be0668da (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/05-22-23_Barrons_The%205%20Stocks%20that%20Rule%20This%20Market%20and%20Make%20Investors%20Nervous_1.pdf)
https://www.bloomberg.com/news/articles/2023-05-16/bofa-survey-shows-investors-most-pessimistic-so-far-this-year (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/05-22-23_Bloomberg_Investors%20Most%20Pessimistic%20So%20Far%20This%20Year_2.pdf)
https://www.bloomberg.com/news/articles/2023-05-18/economic-losses-from-extreme-weather-is-severely-underestimated (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/05-22-23_Bloomberg_El%20Ninos%20Causes%20Trillions%20in%20Lost%20Economic%20Growth_9.pdf)