Many, if not most, METARs are heavily invested in the stock market. Several studies have shown that investing in a low-cost S&P500 index fund consistently beats stock picking (including professionally-managed mutual funds) over time. This is no secret to investors.
https://www.investors.com/etfs-and-funds/personal-finance/sp500-actively-managed-funds-vs-passive/
Investors Finally Throw In The Towel On Active Fund Managers
- MATT KRANTZ, investors.com, 03:05 PM ET 05/23/2024
…
Over the five years through March 2024, investors poured nearly $3 trillion into index funds but yanked about $1.4 trillion from active ones… [end quote]
A study showed that strict end-of-day indexers who are benchmarked to either the S&P 500 or the Russell 1000/2000 held 37.8% of the US
stock market in 2020.
This makes the stock market vulnerable to factors that affect the largest components of the index. Unlike the “old days” when each stock was evaluated on its own merit, today’s market will pull down every component of the index if the largest companies are hit.
The Cyclically Adjusted P/E Ratio (CAPE Ratio), based on average inflation-adjusted earnings from the previous 10 years, shows the SPX is still in a historic bubble. Investor excitement over AI stocks resembles 2000 when excitement over dot-com stocks drove a bubble that collapsed in 2001-2002. The narrowness of today’s stock market bubble resembles many bubbles of the past. (cf. “Manias, Panics and Crashes,” by Kindleberger)
Earnings Season to Test Investors’ Faith in Big Tech Stocks
S&P 500 companies are expected to report the biggest quarterly profit jump since early 2022
By Hardika Singh, The Wall Street Journal, July 7, 2024
An elite cadre of tech giants that drove the stock market to records is under pressure to keep the party going this earnings season.
The S&P 500 has climbed 17% this year, fueled by investor excitement over artificial intelligence that has sent shares of Nvidia and its fellow tech titans to dramatic heights…
The top 10 companies in the S&P 500 make up 37% of the index’s market cap but contribute 24% to its earnings — the widest such gap since the third quarter of 1990…
The stock market’s ascent early this year was in part driven by expectations that the Fed would cut rates at least six times. Those hopes have since dimmed, with traders now betting on at least two cuts by the end of the year. Investors worry that if earnings come in weak, the market’s momentum could fade… [end quote]
The SPX and NAZ powered to all-time highs last week. VIX and Financial Stress are low. The Fear & Greed Index is neutral. The trade is risk-on as stocks are rising faster than the 10-year Treasury.
The Treasury yield curve is close to flat. Longer-term Treasury yields are gradually falling. The options market expects a fed funds rate cut in September and possibly December as well.
Case for September Rate Cut Builds After Slower Jobs Data
Jobs report shows the unemployment rate ticked up to 4.1%, indicating slack in what has been a strong labor market
By Justin Lahart and
Nick Timiraos, The Wall Street Journal, July 5, 2024
The Labor Department reported on Friday that the U.S. added a solid 206,000 jobs last month, slightly beating expectations and continuing a remarkably strong run. But the unemployment rate ticked up to 4.1%, a sign of slack in a labor market that has already shown some hints of gradually slowing down.
There were other indications as well that the job market is continuing to cool…The jobs report seems to have affirmed investors’ view that the economy is slowing, but not in a drastic way that would prompt more aggressive rate cuts. … [end quote]
Economic activity in the manufacturing sector contracted in June for the third consecutive month and the 19th time in the last 20 months, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.
Economic activity in the services sector contracted in June for the second time in the last three months, say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business ®. The Services PMI® registered 48.8 percent, indicating sector contraction for the third time in 49 months. The decrease in the composite index in June is a result of notably lower business activity, a contraction in new orders for the second time since May 2020 and continued contraction in employment.
Since the services sector is about 78% of GDP and labor-intensive compared with manufacturing a slowdown could presage lower employment later. But it’s too soon to say since plenty of new jobs were added in June. Initial unemployment claims, while gradually trending upward, are still very low.
There are no black swans in the news that would upset the markets.
The METAR for next week is sunny.
Wendy
https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/june/
