The financial markets are a mixed bag this year. Overall, stocks are up and bonds are mixed as interest rates have been up. A closer look reveals some interesting, and some would say disturbing, or worrisome trends. As the old saying goes, “let’s look under the hood” at what is going on.
Stocks are up overall primarily due to the “Magnificent Seven”, a mixed group of technology and growth companies. In fact, of the Standard and Poor’s 500 list of companies, the stock prices of the magnificent seven is up an average of nearly 70% through July (according to research from Blackrock and Bloomberg) and the remaining 493 stocks are down. For the record, the list is Apple, Microsoft, Nvidia, Amazon, Meta (Facebook), Tesla, and Alphabet (Google). These companies are seen as the beneficiaries of the latest craze to hit the nation, Artificial Intelligence. When you get a minute, Google search the term, you will find some amazing and somewhat spooky stuff.
How about some current economic trends? Interest rates continue to climb as the 10-year US Treasury Bond yield is the highest in 15 years. Experts say real estate sales are slowing as mortgage rates near 8%, personal credit card and other debt is the highest in over a decade, and auto sales are down. The outlook for 2023 Christmas sales is down considerably from the last several years. On the positive side, we are near full employment in the nation, and inflation appears to have moderated for now.
It is worrisome when the concentration of return is in seven companies, and while most of the list may be excellent long-term investments, the recent returns were likely spurred by speculation. August and September have seen many of these seven drop as investors realize the economy may be moving towards a slow down as rates continue to rise.
We continue to believe in our strategy of investing in the stocks of leading companies (including some of the Magnificent Seven) that pay you and other shareholders dividend payments and have a demonstrated history of raising their dividends. In addition, bonds are providing uncommon value and deserve a bigger place in our strategy moving forward and cash returns are very high. Going forward, we are keeping a close eye for signs of a continued slowdown.
As we move into the beauty of fall, we hope your summer was filled with great memories. Don’t hesitate to send me Your2Cents, and feel free to pass this along to friends and family. And as always, thank you for the honor of serving you. If you have any questions, please let me know.
Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results.