Jordan Daugherty, CFA, presents our June video market update and shares what FSA is doing to respond.
Stock Market Update Transcript
Hello, I am investment analyst Jordan Daugherty, and this is your June market update. The NASDAQ and S&P 500 are back to charting new all-time highs as we close in on summer, but the average global stock is telling a different story. Have a look at this global equal-weighted stock index. Since mid-May, a divergence has emerged between your average stock worldwide and the S&P 500. A divergence like this doesn’t typically last very long, so we’re waiting to see how this plays out. Will global stocks join the rally, or will American large-cap stocks run out of steam? We’re seeing a similar divergence in the amount of new highs recorded. This chart measures how many stocks in the S&P 500 hit a new high in a rolling 52-week period. My point here is that, again, your average large-cap stock is not participating nearly as much in this part of the upmove. The divergence has become most pronounced since mid-May.
Playing diversification by the book has not panned out well for investors benchmarked against the S&P 500. You can see in this chart just how overweight big tech has become in the S&P 500 Index. Almost one-third of the S&P is made up of six stocks at the moment. What’s more is that these stocks are responsible for nearly two-thirds of the S&P’s gains year-to-date. The promise of semiconductors and artificial intelligence transforming the economy is a dominant narrative in the big tech search,. The magnificent one, NVIDIA, has established itself as the leader in AI products and services. NVIDIA alone accounts for nearly one-third of total year-to-date gains in the S&P 500. This Silicon Valley-based company is now valued at $3.3 trillion, second only to Microsoft by market cap size. It also has the highest price-to-sales ratio in the S&P 500 at around 40. So we’re looking at a highly speculative valuation on a company that has a tight grip on the wheel of the S&P 500.
We’re asking ourselves, “How much of the AI boom is resting on high hopes, AKA a bubble, versus how much is based on reality?” While America’s largest bank, JPMorgan Chase, released its annual report in April where it compared the transformational impact of AI to the printing press, steam engine, electricity, and the internet. Could this be the economic miracle we need to cure the government budget deficits? If you think about it, every aspect of industry has adopted computers. One of the least expected industries is agriculture. The most labor-intensive business in history is in the midst of its own revolution from drone crop sprayers to computer-savvy cowboys.
One AgTech company, called Plenty in San Francisco, has reinvented how lettuce is grown. They use vertically stacked indoor hydroponics with robots and measure plant-by-plant data metrics. Plenty now stocks hundreds of Albertsons and Whole Foods and local grocers with pesticide-free spinach, kale, arugula, and more. And they’re doing this with a tiny fraction of the land and water used in conventional farming methods. It’s one of the many inspiring stories that proves to show us how new technology is making big changes. My takeaway here is that there’s still vast unnoticed potential for investors in the long term. As we head into summer, several risks continue to weigh on markets, including nagging inflation, Fed policy changes, geopolitical trouble, and of course, a looming election chock-full of polarizing agendas. So whether we see participation broaden out or not, FSA’s Safety Net® portfolios will follow the money and maintain an exit plan.
That’s it for this month’s market update. Thank you for watching, and we’ll see you next time.
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