The S&P 500 reached a new record high, closing at 5,487.03, a gain of 13.80 points or 0.25%. The Dow Jones Industrial Average also rose by 56.76 points or 0.15% to reach 38,834.86. The Nasdaq 100 Index increased by 6.11 points or 0.03% to 19,908.86 [df440264].
The strength in chip stocks contributed to the market's gains. KLA-Tencor Corp, Lam Research Corp, and Teradyne Inc were among the standout tech stocks. On the other hand, Kroger Company, Lennar Corp, Pultegroup, Toll Brothers Inc, and D.R. Horton experienced declines [df440264].
The 'Fab Five' stocks - Nvidia, Microsoft, Amazon, Alphabet, and Meta - have been driving the growth of the S&P 500 index, with year-on-year earnings per share growth of 84% in the first quarter. This growth has been attributed to the AI revolution, which has played a significant role in preventing a recession. However, concerns are mounting over the sustainability of their valuations and the concentration of these tech stocks in the index [794bc1fd] [8ffc38ec].
The SMH ETF, which tracks chip stocks, has also hit a new high, raising questions about whether the market is in a bubble or about to break out to new highs [794bc1fd].
BTIG's Jonathan Krinsky believes the market is in a correction camp, pointing to a technical divergence where the relative strength of the S&P 500 closed above 70 (overbought) while the relative strength of the S&P closed below 50 (bearish) [794bc1fd].
Despite these concerns, strategists are raising their S&P 500 price targets, with Goldman boosting its target to 5600 for year-end [794bc1fd].
Wedbush's Dan Ives believes that the 'Fab Five' can continue to power the U.S. economy forward, and without them, the outlook would be much bleaker [8ffc38ec].
In November 2023, Goldman Sachs warned that the top 10 stocks accounted for 32% of the total value of the S&P 500. As of February 2024, the 'Magnificent Seven' tech stocks - Nvidia, Apple, Microsoft, Amazon, Tesla, Alphabet, and Meta - were responsible for 40% of the index's growth. While Nvidia has experienced significant growth driven by the AI boom, other tech stocks like Tesla, Apple, Alphabet, and Meta have faced declines or stagnant growth. This raises questions about the sustainability of their valuations and whether the growth in AI is a bubble [8ffc38ec].
The concentration of these tech stocks in the S&P 500 means that investing in an S&P 500 index fund now heavily relies on the performance of a few tech companies. This has led to concerns about the lack of diversification and the potential risks associated with such concentration. Some investors worry that if these tech stocks were to decline, it could have a significant impact on the broader market and the performance of index funds. The current valuations of these tech stocks are also being questioned, as some have experienced declines or stagnant growth. The sustainability of their valuations is a key concern for investors [8ffc38ec].
Warren Buffett, CEO of Berkshire Hathaway, has emphasized the importance of a few winners in generating significant returns in the stock market. He believes that it takes just a few extraordinary stocks to work wonders and that the majority of stocks historically underperform. Buffett's perspective aligns with the phenomenon of a small number of top-performing firms accounting for a significant portion of net wealth creation. The rise of AI-hardware giant Nvidia is a prime example of this trend. The concentration of stock market winners is not a new phenomenon and has been a key driver of the market's climb for years [0a4b1b78].
The macro crosscurrents indicate a bullish 'Goldilocks' soft landing scenario with cooling inflation and strong financial health of consumers and businesses. However, tight monetary policy and the risk of a recession remain. The stock market is a discounting mechanism, and prices may bottom before the Fed signals a dovish turn. Investors should be prepared for volatility and understand that time pays in the stock market. Most professional stock pickers struggle to consistently beat market averages, and the odds are stacked against stock pickers. The article provides a roundup of TKer's best insights about the stock market and highlights the importance of earnings, the makeup of the S&P 500, and the challenges of stock picking [0a4b1b78].
Tech behemoths like [Company] have drawn investor attention due to their stock gains and heavy weightings in market indexes and investment funds. However, there is another group of stocks that deserve special attention - bellwethers, or weathervanes for investors. These companies serve as barometers for their sector or industry, or for the economy as a whole. Historically, conglomerates like the old [Company] were considered bellwethers, but in 2024, there is a new set of bellwether companies. Timing is key for these stocks, as companies that report their earnings early can reveal trends affecting competitors. A company's role in the economy is also important, as the revenues and profits reported by transportation companies and suppliers of key manufacturing components hint at the outlook for their industries. Significant moves in the stock prices of bellwethers can be signals for investors, but most analysts focus on the sales and earnings announcements companies make every quarter. The internet has made it easy for investors to access this information. Six modern-day bellwether stocks to watch are Fastenal, J.B. Hunt Transport Services, JPMorgan Chase, Lam Research, [Company], and Microsoft. [38c0c502]