Stocks Are Scary

5 weeks ago, I wrote my first piece on this blog on regular stocks. I had written a piece about cannabis stocks, which I have been covering since 2013, ahead of that. For anyone that wants to read my stuff on cannabis stocks, I publish at Seeking Alpha each week. I also write a weekly newsletter at New Cannabis Ventures.

The article I wrote on March 5th, Get Out Now, was about two stocks, Nvidia and Super Micro. Nvidia is down a little, and Super Micro has dropped a lot. It was around $1075 then, and this morning it's $895.

Today, I want to discuss stocks in general. I am very short right now in both my trading account and in my IRA, where I own some inverse ETFs. This is not a new idea, and it has been frustrating that the market keeps going up. I think that there are two indices that are problematic: the NASDAQ 100 and the S&P 500. The NASDAQ 100 has a popular ETF, QQQ, and it tracks teh index, which includes the 100 largest non-financial comanies that trade on the NASDAQ. The S&P 500 has one too, SPY. Here is how the very popular ETFs have both performed over the past 5 years, with a low set after the pandemic hit in early 2020:

The NASDAQ 100 (NDX) is down from its peak, an all-time high, in March, but it is up 7.4% year-to-date. QQQ has 47% in its top ten holdings, which include:

• Microsoft (MSFT): 8.9%

• Apple (AAPL): 7.4%

• Nvidia (NVDA): 6.0%

• Amazon (AMZN): 5.4%

• Meta Platforms (META): 5.1%

• Broadcom (AVGO): 4.5%

• Alphabet Class A (GOOGL): 2.6%

• Alphabet Class C (GOOG): 2.5%

• Tesla (TSLA): 2.4%

• Costco (COST):2.3%

These are all well-known companies. I follow 4 of them closely and am short one currently. The returns of these stocks in 2024 is mixed so far. NVDA leads the way, up 72%, while two have declined.TSLA and AAPL.

The S&P 500 includes the largest companies. It's not as concentrated as QQQ is, but it is still very concentrated in its top holdings. Here is a table of the top 10 in SPY, which total 32.4%:

The manager also provides a sector breakdown, and clearly there are other sectors:

The largest stocks have done a lot better than the smaller ones over the last few years. Here is a comparison of SPY to the Russell 2000 (IWM), a popular ETF for a small-cap index:

In 2024, SPY has gained 9.3%, while IWM has rallied 2.8%. The S&P 500 has been posting new all-time highs, while the Russell 2000 has been struggling since late 2021.

Looking at the four sectors that are each more than 10% of the S&P 500, Information Technology leads the way so far in 2024:

Looking at the past five years, the dominance of the sector's returns is even more clear.

IT is a big part of the S&P 500, and it's an even bigger part of the NASDAQ 100. I understand that IT grows faster than the economy, but the stocks are overdone in my view.

I don't think that what goes up must come down! I just hope it does. I actually was trying to get this out before the CPI report, but I didn't get it done quickly enough. The market is now down a lot after the report, which was modestly worse than what was expected. My negativity for stocks has been due to my view that rates are not going to come down. The head of the Federal Reserve and its members have been predicting that they will, but I don't see it that way. The bond investors are counting on lower rates, as the curve is inverted from 2 to 10 years, meaning that the yield of 10-year Treasury Notes is lower than for 2 years. All are less than the current Fed Funds target. I think that stock investors are going to be very disappointed, as higher rates for longer will ultimately hurt the economy. So many investors are excited abut the projected spending ahead for Artificial Intelligence (AI), but I don't think it will be as big as many hope.

While I am bearish on the market, I do own some stocks in my IRA. I shared a piece here a few weeks ago on stocks that I think are buys. The four stocks have increased on average, with one declining and three rallying since then. I currently own three in my IRA, and I own two other positions. I am short through three inverse ETFs. I did reduce some of my short this morning already.