Media personalities often recommend investing in the S&P 500 Index®. Since the indexes are really a list of stocks, you can only invest in mutual funds or Exchange-Traded Funds (ETFs) like SPY and VOO that own the list of stocks. Index funds are often chosen for their low fees.
Investors may not realize that index funds don’t own equal amounts of the stocks in the index. The ‘500’, for example, is weighted so that the most valuable companies represent the largest percentages of the index. Today, with the acceleration of AI, stock indexes and the corresponding ETFs have become increasingly concentrated in the biggest names. Investors pushed up the price of stocks like Tesla, Meta, Nvidia and Google, to the point where the top 10 stocks made up almost 40% of the index, and therefore the index-tracking ETFs.
The problem comes when these mega-stocks lose favor and drive the index lower, even if the other 490 companies hold their value. Index investors are experiencing this today as the top 10 stocks fell 17% this month. An index investor who needs to access their money can’t sell the stocks holding their value without selling some of the rest as well.
Integras Partners has written about excess valuations several times over the past two years, and we have an answer. Our Dividend Growth Strategy holds strong companies with solid balance sheets, high returns on capital and consistently growing dividends. As investors sell overvalued stocks, they often put their money into these types of companies with more stable growth prospects. So, there is a better solution!
Call us today to learn how we can help. 404-941-2800
Today, U.S. stocks are relatively concentrated. An investor in the S&P 500 is putting 40% of their money in the 10 largest companies. Historically, such concentration doesn’t work out well. The S&P 500 is also expensive. Such a concentrated and expensive market requires corporate earnings to continue growing unabated (to support the prices).
There is rarely economic certainty but until new government policy and the resulting economic impacts are understood, you should expect fairly big market swings. It’s been an unusually long time without a market correction (a 10% decline). One or more market corrections this year would not be surprising, so you should be thoughtful about how your portfolio is invested.
Market corrections can come and go in short order. More protracted declines take longer to develop and recover from. It isn’t so much the loss of value that has the most impact on your portfolio, and your well-being. It is the loss of time. Value will rebuild itself. The question is, do the growth assets in your portfolio have that time?
Integras Partners’ Time Horizon Investment Process can help. You can sustain your lifestyle with the money we set aside in Income Strategies, which provides the time needed for our Growth Strategies to capture the growth rewarded by volatile markets. You’re always welcome to speak with us about how we might guide you. The greatest value we can provide clients is the ability to not worry about money, and to go live life!
Call us today to learn how we can help. 404-941-2800
You’re on your financial journey and we can help people pave their own path. This quarter’s commentary blogs start with a recap of 2024 and our views of economic conditions. Then we share some of our ideas for timely investing. You’re always welcome to speak with us about how we might guide you.
2024 was a year of Artificial Intelligence and the biggest company stocks. Despite December weakness, the S&P 500 Index (a common barometer of the U.S. stock market) gained 25% for the year. However, most of this gain was isolated in the largest and most growth-oriented stocks (most of which are heavy into AI), which investors paid more and more for. Smaller companies showed some strength but faltered as concerns about Inflation prospects and continued economic growth kept coming up. Still, small cap stocks finished the year up 11%. Our robust gains were not shared by the rest of the world. And bonds provided a mild 1.3% return.
Our economy is growing at a healthy rate with low unemployment and inflation around 3%. This supports continued corporate earnings growth and possibly the quite high stock prices we have today. The near future appears primed for further growth as many U.S. consumers are getting raises, have little debt, lots of credit available and job security, all of which encourages more spending. While this all sounds supportive of another good year for markets, you must also consider risks to this view, specifically the relatively high stock prices and how further economic growth impacts inflation and interest rates.
The more an economy grows, the more demand there is for money, which increases long-term interest rates. Also, some policy initiatives voiced by the new administration (i.e. tariffs and deportation) are likely to result in higher costs for US companies. Regulatory reform and a more relaxed tax regime should boost earnings growth. Over the last 3 months, long-term interest rates have risen at almost the fastest pace ever because of these possibilities, and they could potentially go higher. Higher interest rates put downward pressure on stock prices, especially when they are already high.
How should you think about investing in this environment?
Call us today to learn how we can help. 404-941-2800
With stock dividends getting taxed twice (once to the corporation and again to the shareholder), many companies are now choosing to return profits to shareholders in the form of stock buybacks instead. While there are several other reasons, the primary one is this tax-efficiency. Many of these companies do not pay a cash dividend sufficient to be included in our dividend growth strategy today. Integras Partners has historically viewed cash dividends as a sign of corporate strength, but this year we are introducing a new metric to our screening processes that includes these companies in the pool of candidates for investment.
Contact us to learn more about our strategies and how they can help you get where you are going. Call us today to learn how we can help. 404-941-2800
Elections can stir strong emotions, but don’t let them delay your investing. Historically, markets are influenced more by economic fundamentals than politics.
Stock values fluctuate under every president, but the S&P 500 Index® trends higher over the long term, no matter who’s in the Oval Office.
Source: Dimensional Fund Advisors
Or which party controls Congress:
Source: Dimensional Fund Advisors
Market reactions to elections create short-term volatility, but defensive changes to your investments are usually detrimental. Regardless of tax policy or regulations, factors like corporate earnings growth, economic conditions, and technological advancements have more impact on market performance.
Integras Partners with clients to keep a long-term perspective, overcome emotional delays, and take action. By keeping short-term cash needs invested with less market risk, we give clients the peace of mind to keep longer-term money invested and feel more comfortable during periods of short-term market craziness.
August through October are historically the weakest and most volatile period for stocks and bonds alike. This year appears to be exceptional. Few expected the strength and resilience demonstrated by financial markets in the third quarter. The S&P 500 Index® posted a stellar 5.77% gain, posting year-to-date gains of 22%. Unlike recent years, the gain was not due to only a few large tech and communications stocks. We’re seeing overdue and much preferable broadening of stocks showing positive returns, and not just from the largest U.S. companies, but in small-caps and foreign markets as well.
The economy remains strong as the Fed begins its interest rate cutting cycle. Not too hot, and not too cold. Just like the story of a lost girl, everything is now “just right”. The Fed is done raising rates, employment strength continues, and economic growth is solid. These conditions amount to a “Goldilocks Scenario”, just about perfect to sustain corporate earnings growth and stock gains. Earnings growth should accrue to the value and small cap sectors, which until recently have lagged the large tech-dominated themes that were driving the market. At Integras Partners, we have been increasing our client allocations to these undervalued areas of the market for several months.
With lower relative prices, small-caps in particular should become even more attractive to investors, given that this Goldilocks scenario lasts for a while. We saw some confirmation of this in the third quarter as the lower P/E stocks began to outperform.
Integras Partners makes it easier to stay invested by actively managing client portfolios across our time-horizon strategies. We do this by keeping low-risk investments to provide for near term goals, allowing you more comfort with keeping longer-term investments intact through market swings. We can help you capture the long-term gains that volatile markets generate over time with less stress.
