You have been reading the truth behind the S&P 500 for years here on Yoursurvivalguy.com. The top-heavy market-cap weighted index gives investors a distorted view of what's happening in markets. Now, Hardika Singh reports in The Wall Street Journal that the index has reached record highs on the back of just one sector. She writes: The S&P 500 is back at record levels for the first time in two years. Information technology is the only one of the index’s 11 sectors that can say the same. Home to the likes of Microsoft, Apple and Nvidia, the tech sector is riding the mania over … [Read more...]
What if Today’s Opinions Are Wrong?
I would be surprised if the average investor understands how major securities indices are composed. Take the S&P 500, for example. It’s a market cap weighted index. What’s a market cap, and how is it calculated? It’s surprising to me how little attention this gets. Market capitalization is the value of all the shares of a company added together. The market cap of the S&P 500 is the value of all the shares of all five hundred companies added together. The companies with the biggest market caps themselves, therefore, make up a bigger part of the index’s market cap. So, when you … [Read more...]
The Truth Behind the S&P 500, Part III
UPDATE 1.23.24: The S&P 500 hit an all-time high this week, driven by the "Magnificent 7." The problem I outlined below back in November 2017 still exists. Too much of the index is wrapped up in a small number of its biggest stocks. Remember the words of Dick Young, "Diversification is discipline." Originally posted November 2, 2017. “Welcome aboard!” For some reason, maybe it’s because of all the cruise ships that have visited Newport this Fall, I’m thinking about the S&P 500 as this huge cruise ship. Imagine the guests are common stocks, and to go ashore everyone is assigned … [Read more...]
Is the S&P 500 a “Lousy Trade?”
You know that Your Survival Guy doesn't "trade" the market, looking to sell at a higher price to the next guy. And Your Survival Guy is not in the market predictions business. But I have been discussing the truth about the S&P 500 for years. In Business Insider, Theron Mohamed reports some comments recently made by Jeffrey Gundlach on the problems in the index, even calling it a "lousy trade." Mohamed writes: The S&P 500 is in a precarious spot, and all signs point to a looming US recession, Jeffrey Gundlach says. The billionaire investor and DoubleLine Capital CEO noted in a … [Read more...]
Is Bigger Really Better in the S&P 500?
You know Your Survival Guy has warned about the truth behind the S&P 500. A handful of big stocks pushing performance in one direction, while the remainder go a different way depletes the index's diversification. Diversification is discipline, and the further distorted the index becomes, the less diversified it is. At Barron's, Nicholas Jasinski discusses how the market is treating bigger as better. He writes: The S&P 500 briefly moved into position for a record close on Thursday, marking a gain of about one-third since it hit bottom in October 2022. Bigger was better during the … [Read more...]
ALLIGATOR MARKET: Calm Surface Hides Danger Below
The S&P 500 is a market cap-weighted index meaning the largest companies by market cap have the greatest impact on its direction. A handful of companies comprise a third of the index today. I explained this in-depth in my series, The Truth Behind the S&P 500. Caitlin McCabe explains in The Wall Street Journal that despite a rally in the overall index driven by a few star names, investors are worried about what lies beneath. She writes: Major indexes have overcome a series of challenges to power higher this year. But some investors are worried that this performance rests on just a … [Read more...]
The Truth About the S&P 500 is Finally Out
You have been reading warnings about the S&P 500 and the truth behind it here on Your Survival Guy for years. Now, everyone else is catching up. The big firms making up a disproportionately large part of the index’s value are suffering declines and bringing the index with them. Matt Murray writes in The Wall Street Journal’s 10 Point email: The 2022 pullback in U.S. stocks is changing investors’ behavior, with more volatility expected. The breadth of the market’s selloff has been striking, dragging valuations lower and tempering enthusiasm for risky bets in the options market. Shares … [Read more...]
The Truth About S&P 500 Index Funds Is Revealed
Investors who loaded up on S&P 500 index funds are beginning to understand the truth behind the S&P 500. Big component companies like Disney, Netflix, Salesforce.com, and Twitter are fueling a sell off. That's not to mention Apple, where a sell off has erased over 6% since the beginning of the year, when Apple was worth as much as McDonald’s, Walmart, AT&T, Philip Morris, Berkshire Hathaway, Proctor & Gamble, JP Morgan Chase, Starbucks, Boeing, Deere, and American Express combined. The number of securities at 52-week lows each day is higher than normal. That's a bad … [Read more...]
Stocks: S&P 500 Hit 25 Records this Year
You may have noticed the food and beverage industry needs workers. Like, right now. You can expand that out to most businesses in the service industry. Your Survival Guy will place the blame on big government unemployment checks and on the lockdowns freaking people out. Case in point, we escaped to the city this weekend to meet friends, and when the sun went down, it turned into a ghost town. No taxis, no Uber, which is basically operating with on-and-off strikes. Why? Because the governor isn’t allowing them to charge higher prices when demand surges. According to him, the city’s still in a … [Read more...]
When Stocks Drop by 33.9%, 49.1%, or Even 56.8%
There’s a time when you’re most vulnerable as an investor. It’s not when you’re knee-deep in work, with retirement waaay off in the distance. It’s when, as you dream about retirement, you look at your statement and do some mental math: when can I retire? You realize, hmmm, I’ve got some money, but I need “X” dollars to retire. I need to make “X” percent on my portfolio to get there. Now, with this dream in mind and a portfolio full of stocks, your palms get a little sweaty when the market drops by 800 points or so. You’re paying a little closer attention to the down days. Maybe a little too … [Read more...]