The S&P 500 is hitting new highs, but very few people are feeling good about our economy! Many people would say that this makes no sense. We agree. Let’s look at what is actually happening in the stock market vs the current market for stocks.
The cumulative returns of all markets from Jan 1, 2022 through May 30th of 2024:
Russell 2000 -7.80
Russell Mid Cap -1.56
International 12.3%
Emerging Markets -7.3
S&P 500 10.73%
As you can see, markets have not been up that much since the downturn of 2022, and some sectors are still down, yet we are currently reaching new highs so what is really going on?
For the first time in history, 10 stocks accounted for 96% of the S&P return in 2023; and so far in 2024, 4 stocks account for 46% of the S&P’s return. This has been a market for a few stocks.
Why is this important? History has shown that returns regress to the mean over time. Business cycles are roughly 7-10 years. Once focus returns to fundamentals rather than the promise of AI, the market should spread out over time with the behemoths returning to normalization in valuation. We have seen this story before in 1999 and everyone knows what happened to the S&P 500 from 2000-2002.
With the economic backdrop of Higher for longer, spending slowing, economy slowing and markets and S&P 500 near 23 times 2024 and 19.5 times 2025 earnings, GGA believes this cannot be sustained at the premium to the historical average. We believe this is a time of caution in the near term for the large cap market. The allocations to midcap, small cap and emerging markets managers are good – and these managers are top drawer. It’s a matter of time until the market recognizes those sectors.
It has not been a stock market; it has been a market of a few stocks which was last seen the 1960’s.
Please call us to discuss the above or if anything has changed that would dictate a change in allocation.
Granite Group Advisors 