I see a lot of headlines in the news lately touting how high the stock market has gone. It is true that the S&P 500 has reached a new Apex – up +19% YTD to almost 5,600.
At the same time, few in the mainstream media are noting that the bond market has tumbled markedly in the last two years (down -16%). Compared with equities, it’s a stark comparison of two markets heading opposite directions.
What’s driving the differences? High inflation and interest rates, of course.
When ‘progressives’ complain about record corporate profits, remind them that those numbers are fueled by 4-decade high inflation. Corporate margins have not gone up by as much – in fact, in Q1 2024, they actually declined.
At the same time, the bond market has gotten devastated by inflation and high interest rates. As interest rates rise, bond prices fall, because new bonds are issued at higher rates, making existing bonds less attractive.
Bonds don’t typically get the headlines that stocks do, but are equally important. In fact, bonds are a slightly bigger market than stocks. US Bonds are currently valued at $51T, while stocks are $47T.
Here are the latest charts for both stocks and bonds. Don’t think about one without looking at the other.
How is your total portfolio shaping up at the mid-point of 2024?
Image: Fotor AI Generated
MrFireStation 
From the title, I thought your latest post was going to be about the S&P 500 being two markets consisting of Market Weighted and Equal weighted versions of the Index.
The following two excerpts come from Brian Bollinger, who is a financial analyst I follow searching for dividends.
“The tale of two markets continued in the second quarter. The S&P 500 returned 4%, driven by a 9% gain in the tech sector. Three stocks – Nvidia, Apple, and Microsoft – drove more than 90% of the market’s growth during the quarter.”
“Following another strong quarter of performance, the four largest stocks in the S&P 500 now account for over 25% of the index’s market value.”
The four companies are Nvidia, Microsoft, Apple and Alphabet.
Brian’s takeaway from this runup of the S&P 500 due to just a handful of four tech stocks driven by AI hype, is that the Market Weighted S&P 500 will likely not outperform Equal Market Weighted S&P 500 Index Funds of the next 1 – 5 years.
For dividend investors this means there are plenty of stocks available with high current yields, long histories of raising their dividends, are boring, and safe available at bargain prices, because of the two S&P 500 Markets!
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I think it’s pretty typical that the S&P is driven by just a few stocks, isn’t it? That’s why index funds do well … because ‘manual’ investors tend to miss the few that drive explosive growth.
With respect AI hype … I’m optimistic. I think AI may be as big as any of the digital innovations that have come before it. It has the ability to impact almost every industry in a positive way. I’m not sure if Nvidia, Apple, Meta, and Alphabet will be the ultimate winners, but someone will be.
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You have a valid point about the Nvidia, Apple, Meta, and Alphabet possibly not becoming the ultimate winners. There was hype about the auto industry when it was new and the same for aviation and many companies did not offer a return to investors. For Nvidia, this is their second hype driven growth period. The last one was use of their chips and graphics processors to mine cryptocurrency.
So far I find AI to be pretty annoying. I have interacted with several phone apps, such as recently calling AAA to get a tow and they have inserted really annoying AI into their call center with the responses being really bad. I get it, executives love ‘free’ virtual employees. They were the same managers who previously outsourced their call centers to India with people who do not speak very clear English and lack a culture of problem solving.
This race to the bottom of the barrel for labor, is how you turn a company into Boeing. Bet the crew stuck on the International Space Station right now, would prefer to get a ride back on a quality built space craft, instead of one that was built to fluff up the books Jack Walsh – GE style.
I have had similar issues with Amazon getting a refund for non-delivered items. My favorite AI misfire so far is buying from a grocery delivery app that miscalculates 30% discounts by multiplying the total by 30% instead of subtracting 30% rolling the prices back to pre-Biden.
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In a town not so far, lived a man named Klaus,
Who studied his stocks from his cozy old house.
He loved dividends, oh yes, with great cheer,
For each little payout, he’d give a loud cheer.
He saved up his pennies, he saved up his dimes,
Investing in stocks that grew over time.
When retirement came, Klaus was not one to pout,
With dividends flowing, he traveled about.
He sailed the wide seas, he climbed mountains tall,
Thanks to wise investing, he answered life’s call.
So here’s to dear Klaus, so clever, so wise,
With dividends dancing, he reached for the skies!
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Total return on all investments YTD 9.4%. Some of my best returns are Novo-Nordisk (weight loss drug), Itron (smart water meters, and Broadcom and then through in some Apple, Microsoft and NetFlix
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I’d be happy with +9.4%. I have to do a mid-year update to see where we are at.
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