To summarize 2023’s markets in 4 words: The pundits were wrong.

Throughout 2023, especially in Q4, the markets blew through the headwinds and posted unusually high gains nearly across the board. And the funny thing is that if we held these talking heads accountable and tracked their earlier predictive success rate(s); historically they’re wrong more than they are right. A great reminder to question everything: In the Information Era, it’s more about editing out misinformation as opposed to lack of access to information.

In being forward looking, one predominantly under-noticed market story is how a very small number of stocks have come to dominate the robust returns of the U.S. indices. Seven stocks–Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta Platforms and Tesla–accounted for 65% of the returns of the S&P 500, and because the index is capitalization-weighted (larger stocks count more than smaller ones), they now make up 28% of its weighting. The other 493 stocks in the large cap index, in aggregate, were underperforming on average.

For people with long memories, this performance by the ‘magnificent seven’ brings back echoes of the ‘Nifty Fifty’ bubble in the 1960s and 1970s, when a basket of stocks (Xerox, IBM, Polaroid, Coca Cola, etc.) rose for decades, and seemed poised to never fall. The shorthand version of the ending is that investor expectations of more of the same caused them to become overpriced, and crash in the 1973-74 bear market. It’s also worth noting that the S&P 500 index is now sporting a 25.35% price-earnings ratio, which means that investors are paying between 71% to 129% more for a dollar of earnings today than they have over the long-term history of the markets.

Whenever you see complacency, it’s time to be wary. With strong headwinds of the unemployment rate staying at near-record lows and consumer spending continuing to surprise on the upside, there should be US Stocks that will benefit in 2024. But the true value of an Investment Advisor is to look beyond the extremes and instead focus on the enduring value of superior companies whose stock price is not trading at all-time highs.

Read this behind the curtain view in Bloomberg on how Founder Sam Huszczo avoided the herd’s 2023 miss on Dividend Paying Stocks: https://sghwm.com/stock-safety-trade-misfires/