The second quarter of 2024 saw the S&P 500 Index eclipse all-time highs again. This is not a “rising tide lifts all boats” market rally, though. The S&P 500 Index has nearly become synonymous with the market in recent years. However, it only encompasses 502 large-capitalization stocks in the United States. Thousands of other stocks trade in the US and around the globe. Even within the S&P 500, a very small number of stocks generate a disproportionate amount of the entire index’s return. As seen below, just 7 of the 502 stocks have generated over 60% of the S&P 500 Index’s return. These seven companies are commonly referred to as the “Magnificent Seven.” If we dig one layer deeper, a single stock has generated half of the “Magnificent Seven’s” return.
“Narrow Market Leadership” is the investment jargon term for this phenomenon. It can be a sign of an unsustainable market rally, compared to an event where most companies are increasing in share value.
There is a natural tendency to desire a change in investment strategy based on these types of events. In short, that is rarely a good idea. When we combine this information with other data points, it shows signs of economic slowing. We don’t suggest taking unnecessary risks right now, like putting all of an account into the seven stocks noted above. At the same time, attempting to time market moves is generally unfruitful, so we don’t suggest selling stocks. It would be a good time to rebalance back to neutral. Assets not needed for a long time are still well suited to stock investments, but not funds needed soon.
Election headlines are sure to plague our news feeds through November. Below, you can see a graph of the S&P 500 Index returns color-coded by presidential party.
The only discernible patterns that can be observed are that it goes up more than it goes down, and that the color doesn’t make much difference. We actively monitor what is happening in politics, as it does affect investing, but it is not a reason to be in or out of the market.
Disclosures: This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Past performance does not guarantee future results. Investing involves risk, including the loss of principal. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock’s weight in the index proportionate to its market value. Neither Asset Allocation nor Diversification guarantee a profit or protect against a loss in a declining market. They are methods used to help manage investment risk. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained directly from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
