You've no doubt heard it dozens of times before... "Don't put all your eggs in one basket."
Editor's note: The markets and our Chaikin Analytics offices will be closed tomorrow, July 4, for the Fourth of July holiday. So we won't publish our Chaikin PowerFeed e-letter. You can expect to receive your next issue on Friday, July 5.
It's Time to Look Beyond the S&P 500
By Vic Lederman, editorial director, Chaikin Analytics
You've no doubt heard it dozens of times before...
"Don't put all your eggs in one basket."
It's one of the most overused clichés in investing.
As you know, the phrase stresses the importance of diversification. In other words, spreading out risk across a group of investable assets.
Sure, you can own real estate, stocks, bonds, gold, or cryptocurrency. But owning too much of one type of asset can overexpose you to big downside.
After all, things don't always go as planned. So don't commit most – or all – of your money into one particular investment.
When it comes to the stock market, advisors tend to suggest owning a basket of 20 to 30 stocks to be properly diversified.
And many investors think that buying a "broad market" exchange-traded fund ("ETF") like the SPDR S&P 500 Fund (SPY) makes them diversified.
After all, those funds hold a huge basket of stocks. But that basket isn't as diversified as most investors think...
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Owning shares of an ETF like SPY seems like an easy way of owning a little bit of every company in the S&P 500 Index.
One share of SPY today costs about $549. On the other hand, you would need more than $4,800 just to own one share in each of the 10 largest companies in the S&P 500.
But the S&P 500 today is very different from how it was 20, 10, or even just five years ago...
The constituent companies in the index have changed over the years. And so have the weightings.
Before 2020, the top 10 constituents of the S&P 500 accounted for between 17% and 27% of the index's total weighting.
But over the past few years, their contribution to the overall index has ballooned to historical proportions.
By mid-2023, the top 10 stocks in the index accounted for about 30% of the overall weighting.
Today, that weighting is up to roughly 36%.
That means the S&P 500 today is the most concentrated on the 10 largest companies that it has been in at least the past 30 years.
In other words, ETFs tracking the S&P 500 are the least diversified they've been over that same time frame.
And while they still hold all 500 companies, more than a third of their funds are allocated to just 10 companies.
The average year-to-date gain for all 10 companies comes to about 43%. They're responsible for nearly all the S&P 500's roughly 15% move higher so far this year.
And that has some folks worried...
That's because when the 10 largest constituents have accounted for the bulk of the S&P 500's gains in the past, the index itself hasn't done as well.
For example, let's consider 2007. Back then, the top 10 companies were responsible for nearly 79% of the S&P 500's gains. But the index posted a gain of less than 4% that year.
And when the top 10 companies were responsible for 59% of the gains in 2020, the index advanced about 16%.
And there's 1999, just as the dot-com bubble was about to pop. That year, the top 10 companies were responsible for about 55% of the S&P 500's gains. Meanwhile, the index was up less than 20% for the year.
Folks, I'm not saying the market can't continue its upward climb through the end of the year. It can. And as regular readers know, I'm still "bullish" on stocks overall for 2024.
But the takeaway is clear...
If you have all of your eggs in the S&P 500 basket, you're not diversified. In fact, your investments are more concentrated than they've been in 30 years.
That means it's time to look beyond the S&P 500.
In fact, my colleague and Chaikin Analytics founder Marc Chaikin recently went on camera to share a specific stock strategy...
And it's one that he expects will crush the S&P 500 for years to come.
As part of Marc’s presentation, he named the exact group of stocks he's targeting today – and likely for the next five to 10 years. It's where he thinks the biggest winners in the market will be.
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks remain somewhat Bullish. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Discretionary
+3.22%
Information Technology
+1.14%
Real Estate
+1.03%
Financial
+0.97%
Communication
+0.12%
Energy
-0.42%
Industrials
-0.66%
Staples
-1.09%
Health Care
-1.52%
Utilities
-1.53%
Materials
-1.75%
* * * *
Industry Focus
Bank Services
51
36
5
Over the past 6 months, the Bank subsector (KBE) has underperformed the S&P 500 by -14.95%. However, its Power Bar ratio, which measures future potential, is Very Strong, with more Bullish than Bearish stocks. It is currently ranked #3 of 21 subsectors.
Top Stocks
AX
Axos Financial, Inc.
BK
The Bank of New York
FFBC
First Financial Banc
* * * *
Top Movers
Gainers
TSLA
+10.2%
PARA
+5.72%
ON
+5.41%
AMD
+4.2%
GNRC
+3.11%
Losers
CF
-3.48%
TPR
-3.45%
INCY
-3.04%
FSLR
-2.69%
ABBV
-2.59%
* * * *
Earnings Report
Reporting Today
Rating
Before Open
After Close
JEF
STZ
No earnings reporting today.
Earnings Surprises
CDMO Avid Bioservices, Inc.
Q4
$-0.08
Missed by $-0.07
MSM MSC Industrial Direct Co., Inc.
Q3
$1.18
Beat by $0.02
* * * *
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