Just Buy Stocks (and Lose)

"Long and wrong" is something I have experienced a lot over my 40+ years of investing, but I am currently suffering from a non-rhyming problem: short and wrong. I have expressed my negative views on stocks here several times, most recently less than a week ago, when I said that stocks have peaked. Of course, nobody KNOWS the direction of stocks for any minute ahead or even longer periods of time. I am smart enough to know that my timing could be off, or maybe I have been wrong.

This morning, stocks are giving a signal that the peak was the peak. Of course, the Dow Jones Industrial Average peaked higher than where it was six days ago, soaring 743 points to almost 41,000 yesterday. I don't think that this index captures the market very well. Most people, rightly I think, focus on the S&P 500, which closed yesterday at 5667, it's highest close every. There is an ETF with $567 billion under management that tracks it, SPY, and it was up last night from the time that I wrote that last article on July 11th, closing yesterday at 564.86, up 1.5% from the close that day. As I type an hour ahead of the open, it is trading just below 560. Here is the year-to-date chart:

Up almost 19%, things must be going well, right? No. I have discussed before the reason the index is up so much. 146 of the 500 stocks in the index are down year-to-date, but the Magnificent Seven have been soaring. These 7 stocks totaled 30.7% of the index :

These stocks have been soaring in 2024:

All of them are up more than SPY. Last time, one, Tesla (TSLA) was actually down. I wrote negatively about Tesla on July 3rd, and it is higher now. I am short it still.

So, why is the market up so much? Fueling the Magnificent 7 has been a fervor for artificial intelligence. As I have discussed before, there is a lot of optimism, too, for lower interest rates. Perhaps another driver has been the drop of Biden's likelihood of getting reelected. The market seems to favor Trump.

This morning, the market is getting pounded. There is no clear reason to me. I have discussed here my views that technology stocks and the NASDAQ-100 are too high, and I have also shared my own favoritism towards small-cap stocks. There are lots of ways to measure small-caps. There is an S&P 600, and there is the Russell 2000 that has an ETF, IWM. The last few days, small-caps have soared. Not today! They were up a little in the morning when other stocks were lower, but everything is lower than very early this morning now. Here is the action in July for IWM, SPY and QQQ:

Despite the big lift, which has left several gaps below, in IWM, it is up 11.9% year-to-date, which is a lot less than the 18.8% gain in SPY or the 21.2% increase in QQQ. The S&P 600 index is up even less.

Interest rates are slowing the economy and negatively impacting consumers and businesses. Lower rates likely aren't happening and won't fix things anyway in my view. Trump may get elected, but his administration isn't likely to fix things quickly either. I have been wrong or too early in my negativity. I am open to the idea that I have been wrong, but I can't figure out what I am missing.

Smart investors should exit the Magnificent 7, reduce exposure to large-caps and technology stocks, and should be very careful!