Stocks Exhibit Modest Gains; S&P 500 in “Bull Market” – Really?

The Dow (+0.3%), NASDAQ (+0.1%) and S&P 500 (+0.4%) each posted modest gains for the week.  Meanwhile, taxable bonds and tax-free municipal bonds ranged from -0.2% to +0.2%, depending on the specific category of bonds.  The 10-year Treasury yield rose about 0.05% to close the week at 3.75%.

There wasn’t much economic data reported last week, except that the S&P 500 was considered to be in a “bull market”, as it has gained 20% since its low in October 2022.  Over the past few weeks, I have been conveying that this stock market rally is not broad-based, but only driven by a small handful of stocks.  To illustrate that, I have provided a handful of charts that should satisfy the old saying, “A picture is worth a thousand words”.   Well, here are several thousand words.

The first chart shows the S&P 500 (in red) with YTD gains of 11.8%, while the blue chart shows the S&P 500 equal-weighted index with gains of only 2.6% YTD.  The disparity is due to seven companies that represent over 25% of the S&P 500 (market cap weighted) index.  The second chart shows those seven companies’ stock performance YTD, ranging from about 30% gains to 165% gains.  In the upper right corner, the graph shows the difference between growth stocks (such as technology companies) gaining over 20% vs. value stocks gaining about 1%.  Many economists consider this to be an “unhealthy” market when market gains are represented by only a small handful of stocks that are being propelled by their roles in Artificial Intelligence (AI).  Further, the PE ratios of those stocks suggest that their stock prices may be way over valued.  In other words, don’t be fooled by the “bull market”.

All eyes will be on the Fed this week, as they will decide on Wednesday if they will raise interest rates for the 11th consecutive time dating back to March 2022.  The consensus among economists and the bond market is that the Fed will likely “pause”, and wait until the next meeting in July to decide if they will raise interest rates again.  The important Consumer Price Index (CPI – leading inflation measure) is being reported on Tuesday and could influence the Fed’s decision the following day.  If the Fed raises interest rates, it will likely be met with downward pressure on both stocks and bonds.

^{Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.}

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.