“What Don’t You Want?”
There’s a famous scene in the 2016 Taylor Sheridan film Hell or High Water in which two Texas rangers are ordering their meal at the “World Famous” T-Bone Café. The scene was completely stolen by the actor playing the waitress, who, with all the contempt she could muster, asks the two unwelcome lawmen, “what don’t you want?” Apparently, the only choice on the menu was which one of two sides to leave off the order. “So either you don’t want the corn on the cob, or you don’t want the green beans!” the snarling waitress hissed. Either way, the rangers were getting medium rare T-bone steaks and baked potatoes, no questions asked. (Both lawmen politely agreed that they did not want any green beans.)
Investors in U.S. stocks must be feeling a lot like those rangers these days. That’s because, for investors in the S&P 500, more than a third of the plate when it arrives will be in just ten stocks. And those ten stocks will not be made to order—most of them will be served well-done. Overcooked by the market at 30 times forward earnings.
For markets in February, it was the same movie that’s been playing for months. Stock prices pushed higher again. The S&P 500 powered ahead by another 5.3%. The NASDAQ ripped higher by another 6.2%, finally regaining its all-time highs last seen two years ago. Strong earnings reports bolstered investor confidence to stretch valuations among tech leaders to even higher levels. For the most part, that is.
The Magnificent Seven, the group of megacap tech stocks responsible for the lion’s share of the S&P 500’s total return since January 2023, is no longer behaving as a single powerhouse unit. For example, electric car darling Tesla is down 28% since the start of 2024. Alphabet, Google’s parent company, is off almost 6%, and shares of Apple Inc., have declined by almost 12% this year. Now, NVIDIA is up 71%, and Meta Platforms is up 39%, so not all is lost among tech titans, but it is interesting to note that market leadership is changing, or at least narrowing.
This powerful rally is susceptible to some economic crosscurrents. The global economy seems to be slowly going back to its pre-pandemic convention of lower rates and slower growth, but there are still pockets of higher inflation and higher growth in the mix. As this transition continues and short-term rates eventually come down, we can expect there will be more price volatility at the top, but perhaps less so among the greater part of the markets outside the top ten.
Who knows? We might one day soon be able to order some T-bones rare. Or even trout.
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For more information, please reach out to:
Burke Koonce III
Investment Strategist
bkoonce@trustcompanyofthesouth.com
Daniel L. Tolomay, CFA
Chief Investment Officer
dtolomay@trustcompanyofthesouth.com
This communication is for informational purposes only and should not be used for any other purpose, as it does not constitute a recommendation or solicitation of the purchase or sale of any security or of any investment services. Some information referenced in this memo is generated by independent, third parties that are believed but not guaranteed to be reliable. Opinions expressed herein are subject to change without notice. These materials are not intended to be tax or legal advice, and readers are encouraged to consult with their own legal, tax, and investment advisors before implementing any financial strategy.
