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What’s Next? Thumbnail

What’s Next?

Doug Johnson CFA, Senior Investment Strategist

There is an old market adage that says, “Sell in May and Go Away.”  The slogan was derived from the Stock Trader’s Almanac and suggests that the best six months of the year for stocks occur from November through April. Based on this, the Almanac encourages a simple strategy of selling stocks in May and waiting until November to buy back in. While this strategy is enticing in its simplicity, it is rather extreme and is an approach that could be hazardous to act on.  

With that said, there is some empirical data that backs up the approach. According to LPL Research, over the past 20 years May has seen the 6th worst monthly return profile for the S&P 500, with 3 of the worst 5 months falling in the May-Oct time period.  So, did May 2024 prove the Almanac correct?  Not quite.  The S&P 500 returned 5.06% in the month of May.

Source: LPL Research, FactSet, Bloomberg 04/29/24 (1950–current)

Another hot topic has been the historical level of market concentration in the top 10 stocks, by market size, in the S&P 500 index.

The chart above from Bank of America Research shows the Top 10 companies in the S&P 500 index, as a percentage of the total market capitalization, of the index. The two main takeaways from this chart are the comparisons to 2000.   First, notice the names at the top of the index have completely changed, reminding us that the leading sectors and industries are constantly evolving over time.  Second, is the percentage represented by the Top 10 companies in 2024 vs. 2000.  The current Top 10 concentration is at an all-time high of roughly 35%, almost 8 percentage points higher than at the peak of the 2000 tech bubble! 

Are Tough Times are Ahead?

Some investors have become concerned that the current market shares too many similarities with 2000, and because of this it will ultimately suffer the same fate.  At this point, we believe this is a weak argument.   While it is true that the tech sector has been the main driver of returns for the past few years, the profit generation of the companies in 2024 far exceeds those in 2000.  In fact, if one looks at the profit concentration of the Top 10 companies in the index, those names represent roughly 45% vs. only around 30% in 2000 according to Morningstar.  Bottom line, the names at the top of the index in 2024 are sustaining strong earnings growth which continues to lead to strong returns.

While it has been more of a struggle for other areas of the market, the outlook remains positive.  According to Factset Earnings Insight, analysts are still projecting high single-digit earnings growth for Q3 and Q4, with a full-year growth rate expected to be about 17.5%.  That projection includes a strong boost from areas outside the large-cap tech space, including more small and mid-cap companies. Many of the smaller companies have been challenged this year as stickier inflation has kept interest rates elevated and delayed the timeline for expected rate cuts by the Fed.

Fixed income returns have been weak; however, bonds continue to offer attractive opportunities for total return.  Unless inflation returns with a vengeance, the likely next move for the Fed is to cut rates.   With this in mind, locking in current levels of income for the next 3-5 years may pay dividends down the road.  We also are maintaining healthy cash balances to collect income while keeping dry powder available for opportunities in both stocks and bonds should they arise.

For Tactical portfolios, HCM remains overweight in US stocks as we believe the combination of strong earnings growth, supportive technicals, and restrained inflation provide a favorable environment for stocks.  As mentioned at the beginning of the article, summer months have historically seen less favorable conditions for equities, especially September, so some volatility is to be expected.  However, until we see a significant shift in earnings, technicals, or inflation, we will likely remain positive on stocks.  Based on history, this bull may have some room left to run.

Source: Sam Ro


Weekly Focus – Think About It 

“Wealth consists not in having great possession, but in having few wants.”

Market Activity

Performance last week for the four major asset classes were:

  • U.S. Stocks – Russell 3000 (IWV) – Loss of -0.46%
  • Developed Foreign Markets (EFA) – Gain of 0.16%
  • Emerging Markets (EEM) – Loss of -2.86%
  • Fixed Income (AGG) – Loss of -0.06%

(Note: performance is based on the change in price plus dividends)

Last Week’s Headlines

  • US stocks receded last week from record highs, with VIX reaching a 4-year low.
  • PCE, the Fed’s preferred gauge of inflation, was little changed from the previous month and remained well above policymarkers 2% long-term target.
  • First quarter GDP wasn’t as strong as initially estimated and was revised lower to an annualized rate of 1.3% vs. an initial estimate of 1.6%

Eye on the Week Ahead

  • Both CPI and PPI will give an updated reading on inflation

If you have questions about the recent price volatility please contact a member of HCM’s Wealth Advisory Team:

If you have questions about the recent price volatility please contact a member of HCM’s Wealth Advisory Team:


 Any tax or other advice contained in this document, including any attachments, is not intended and cannot be used for the purpose of avoiding penalties under Internal Revenue Code. No action should be taken on any information contained in this message without first consulting with your tax/legal advisors regarding the tax/legal consequences for your particular circumstances.

 Additional Notes:

  • The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in genera
  • Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance
  • Past performance does not guarantee future results
  • You cannot invest directly in an index
  • Consult your financial professional before making any investment decisions

 • • •

Doug Johnson CFA, Senior Investment Strategist
 Doug Johnson CFA
Doug is the Senior Investment Strategist in the Investment & Research Department. He guides the Investment Committee in developing and implementing HCM’s investment strategies. Doug and his wife Cindy live in West Chester with their two sons. In his free time, Doug enjoys family time, golf, playing and watching hockey, and travel.
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