The S&P 500 has had a fantastic first 6 months of the year – up almost 15%. That’s a welcomed relief from the miserable 2022. But are stocks now too expensive? What’s the premium investors are being asked to pay? There are a couple of ways we can assess this. For example, we can compare the earnings yield against the risk free rate of return (currently around 5.5% and going up). And whilst it’s always good to maintain some (long) exposure to the market – we need think carefully about how much (and where)
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The One Thing Driving the Market
It’s risk on. That’s the market’s sentiment. Question is whether that risk is worth it? There are only a handful of stocks carrying the market higher – a sure sign of both fragility and bearishness. Are there are only “10” stocks that can grow? We have not seen a market this narrow since the dot.com bust. Now should names like Amazon, Google, Apple, Microsoft, Meta and Tesla pull back from nose-bleed valuations – the whole house comes down with it.
If the Apple Falls from the Tree… Does the Tree Fall?
Apple managed to beat very low expectations. However, revenue fell for the second consecutive quarter. Nonetheless, the stock was slightly higher on the news. Consider it a safety trade. More broadly, stocks fell today as they wrestled with the threat of more regional bank failures and a committed Fed. Here’s my basic question: will we see three rate cuts before the end of the year? My view is we won’t see a single cut (let alone three). If I’m right (and I may not be) – there will be a painful adjustment in the market.