How is the Real Stock Market Doing?

How is the Real Stock Market Doing?

The stock market indexes have had an impressive recovery off the March 23rd lows. However, the real question beckons…are most individual stocks participating?

Even with impressive gains in the indices, and positive news from Gilead coronavirus drug Remdesivir, and the government’s stimulus programs, the gains have been quite narrow, leaving many investors questioning whether this rally is for real.

A recent Goldman Sachs report illustrated that the 5 largest stocks in the S&P 500 (Facebook, Alphabet [Google], Apple, Amazon and Mircrosoft), which account for over 20% of the total market cap of that index, have rebounded to about 15% below their February highs. Yet, the median stock in the index is still down over 28% from their highs. That’s a huge discrepancy and helps explain why the large majority of individual investor portfolios are significantly lagging the broader indexes like the Dow and the S&P 500.  

The concern is that the stock market’s heavy concentration in a just few names could hold it back from rebounding to its February highs without broader participation.

In similar periods, the discrepancy lasted for about 3 months. However, during the tech bubble in the late 1990’s it lasted more than 2 years. Eventually, the gap will close either from the leaders falling back or the rest of the market catching up. 

The reason for this exercise is two-fold. Don’t be overly concerned with short term performances so far in this brief recovery and that there are some concerns regarding the lack of broader market participation.

I expect the majority of stocks to catch up to the big 5 as the massive changes I mention above begin to take hold. However, if there is no broader stock involvement, that would be a big red flag. One which I will be monitoring carefully.

I remain very optimistic about the economy and the financial markets, and I am extremely happy with the performance of our portfolios. It is not an easy task to get the very best returns but with the least risk possible.

There will be many changes to the economy and the markets in the coming days and weeks, so we must stay vigilant and maintain a “pray for peace, but prepare for war” approach. 

As more economic data is released showing the true damage, don’t be surprised by the frightening negative headlines, especially when earnings season is over and there is nothing to focus on. That’s the Epic Battle between the damaged economy vs. the Fed that I discussed last week. In the long run, we know who is going to win.

Feel free to contact me with any comments, questions, or concerns you might have.

“Invest for need, not for greed!”

Cheers -Keith


Smart Money Newsletter

Written By: Keith Springer

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