Outlook & Ideas
3rd Quarter 2024
At the end of June, the market – as evidenced by the S & P 500 stock index – was at a record high. The Dow Jones Industrial Average (DJIA) was also close to an all-time high. But most stocks have been struggling. How can that be? The S & P Index is weighted, meaning that the large and pricy stocks in the index e.g. Microsoft, Nvidia, Apple, influence that index more than the smaller members. It is the same with DJIA, which has only 30 members.
Thus, the S & P 500 index is up over 14% year-to-date, while the unweighted index – all 500 stocks performance ranked equally – is up only about 4%. A similar situation is seen with DJIA. This has happened in the past – 1999 – but usually doesn’t last long. The smaller index members “catch up” or the larger ones sell-off.
The backdrop for the overall market remains fairly constructive. Inflation continues to slowly abate, and unemployment remains low. Consumers are still spending, but more slowly. Corporate profits are still growing, and interest rates are poised to begin falling later this year or next. That should be good news for stocks, but that may be already priced into the indices. The usual secondary factors influencing stock prices: the upcoming election, geo-political threats, unknown risks e.g. terrorism, remain. As mentioned above, many stocks haven’t reacted to the more favorable environment.
Our second quarter report mentioned Pfizer (PFE) at $27.75. It hasn’t moved in 3 months while sporting a 6% dividend. Same with Citigroup (C, $63.50). Its turnaround is accelerating and remains far below the sum of its parts. We still like Truist (TFC, $38.85), another big bank – up slightly since March, and yielding over 5%.
Many of the big technology companies have become very expensive, e.g. Nvidia, ARM Holdings, Micron, although long term they should be fine. Alphabet (GOOGL) is perhaps the cheapest of the group at $182 and a forward price/earnings ratio of 24, only slightly higher than the average stock.
As we said 3 months ago, the market is due for a “correction”. It hasn’t happened yet but eventually will. We advise keeping a healthy amount of money in our money market funds to take advantage of lower prices when they adjust. Meanwhile there are always opportunities.
Market volatility should continue, which should make professionally researched stock selection imperative. If you are unwilling to closely monitor your portfolio that is more than $250,000, consider using our popular managed account service. The fee is quite competitive and is managed by advisors with over 90 years in combined market experience. For more information, please contact Bob Mann or Charles Harris.
And contact one of our friendly and experienced advisors for more information about any of the above securities or for a portfolio check-up. For investors with portfolios of $400,000 or more, you might generate several thousand dollars of additional income a month through covered call option selling. Contact Bob Mann for more information, including all risks.
Prices and yields as of June 28, 2024. The above information is believed to be reliable but is not guaranteed to be accurate. Investors should check every investment for suitability for his or her needs. Stock and option investing is risky, and you could lose money. The author and/or his clients maintain positions in all of the above-mentioned securities. First Georgetown Securities, Inc. will furnish available information supporting the above recommendations on request.
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