Market Recap:
Stocks climbed higher in October with the S&P 500 finishing the month up 2.27%. That’s now six straight months of gains heading into what’s historically been a strong time of the year for equities. However, market breadth, meaning the percentage of stocks participating in the advance, is weakening. Less than 60% of S&P 500 companies are trading above their respective 200-day moving averages. As such, this rally continues to be shouldered by the mega-cap tech companies. Expanding profit margins in these companies are pushing the index higher, while margins for the rest of the S&P 500 have flatlined by comparison In addition, growth over the past few years has been unimpressive. The concentration risk keeps building, but there’s no obvious signal that the party is over yet.
What We’re Watching:
Outside of big tech, we’re watching hard assets like commodities and metals which continue to look strong. After 15 years of these assets being cast aside in favor of technology stocks, they are back and for good reason. The strong advancement of gold and silver is a very real reminder that individuals, institutions, and governments are beginning to lose faith in our monetary system.
Chart of the Month:
You’ve probably seen charts like the two that follow, but it’s worth posting them again. As professional money managers, we are constantly compared to the performance of the S&P 500 index. We hear it all the time “why would I hire an advisor who can’t beat the S&P 500?”.
For a while now, matching or beating the S&P 500 is simply a competition of who is willing to take on the most concentration risk. While the Mag 7 have soared, the other 493 companies have been left behind from a return and earnings growth perspective. The broader economy is struggling. Not only are we seeing the economy and stock market decouple, but we are also seeing the largest seven companies in the S&P 500 completely detach from reality.
