Still Cautious on Stocks!

I last wrote about stocks here on May 2nd as I described my cautious outlook. I have been around long enough to know that no one knows what stocks will do in the future. I certainly did not! I described stocks as looking like they had topped out in April, but the rebound over the past month has pushed the market to an all-time high:

The S&P 500 closed last night at 5361, which is up 12.4% so far in 2024. It is up over 28% since the low in late October.

Over the past year, the S&P 500 (as measured by the ETF SPY) has gained 24.6%, which is a lot. This performance has been much better than for smaller stocks. IWM, the Russell 2000 ETF, has gained 9.1%. The solid performance of technology is seen in QQQ, the NASDAQ 100 ETF, which is up 31.1%:

In early May, I pointed out that QQQ was now trailing SPY year-to-date, but this is no longer the case. QQQ is up 13.5% with SPY up 12.7%. Still, though, the rally in the S&P 500 has been generally very narrow. Three stocks that are in the index have more than doubled: Super Micro (SMCI) has increased 177%, NVIDIA (NVDA) is up 146%, and Vistra (VST) has gained. I don't know Vistra, but I wrote about both SMCI and NVDA in early March. NVDA has rallied 43% since then, while SMCI has pulled back 27%.

60% of the stocks in the S&P 500 are down year-to-date! Overall, it is a bull market, but how odd that most of the stocks are down.

Last year, commentators dubbed the strong performers the Magnificent 7. These included Amazon (AMZN), Apple (AAPL), Alphabet (GOOG), Meta Platforms (META), Microsoft (MSFT), NVIDIA (NVDA) and Tesla (TSLA). NVDA is performing extremely well, and Tesla is plunging. Apple is up slightly, and the other four are up more than the S&P 500:

When I am wrong like I have been, I try to learn why and perhaps change my perspective. I am frustrated that the market just keeps going up, but I haven't learned any reason to change my cautionary views.

The big story right now remains interest rates. Lots of investors are betting on lower rates ahead, but this has been very slow to play out. The Federal Reserve begins a two day meeting today, and no rate change is expected. The yield curve remains very inverted. I discussed what inversion is about two months ago. Rates have declined since then by just a little. The 2-year Note last night was at 4.88%, down 0.02%, and the 30-year Bond was at 4.6%, down 0.03%. The intermediate part of the curve has declined more, with the 5-year Note (4.48%) down 0.08%, and the 10-year Note (4.47%) down 0.05%.

So, we remain in a very narrow bull market with rates projected to fall. I remain bearish, with bets against the QQQ and NVDA in my trading account and in my IRA. I am long 5 stocks now in my IRA, and they are all down a lot year-to-date:

Small stocks are struggling, and I am able to find companies trading below tangible book value. Maybe one day this will work! There are a few other stocks I have my eyes on.

We have come a long way since a little over 4 years ago, when the pandemic hit. The S&P 500 , at an all-time high, has gained 85% over the past five years, and SPY is up140% since 3/23/00. The market seemed overly cheap then, and it seems overly expensive now. The forward PE on the S&P 500 is over 20X.