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We often hear about what the “market” is doing.  The S&P 500 is the most widely known index associated with the “market.”  In most cases, the S&P 500 as a benchmark, does a fine job tracking the health of the global economy and the 500 largest companies that make it up.  However, in certain environments, the S&P 500 may be a wolf in sheep’s clothing.  What do we mean by this? Let’s dig in a little deeper.  The S&P 500 is a market cap-weighted index, where in most years, some company’s stocks rise, some fall, and some are neutral. In upward rising markets, the majority of the stocks in the index will rise.  However, under certain circumstances, much like we have seen in 2015, the largest 10 stocks in the index (by market cap) have returned over 22% while the rest of the index has returned a paltry -2%. This spread is as wide as we have seen since the tech bubble in 2000.  The returns are heavily driven by the (T)FANG names (Tesla, Facebook, Amazon, Netflix and Alphabet a/k/a Google). However, if these names stumble, the market has little or no support behind it.  We don’t know for certain, however, that these data points are cause for concern. Uncertainty already existing from the FOMC expected rate hike, above average PE multiples relative to earnings growth, commodities crush, and other “risky” assets failing to confirm is exactly why we remain cautious and disciplined in this type of environment.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Gainplan LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Gainplan LLC or performance returns of any Gainplan LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Gainplan LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

 

Categories: Industry Ideas, The Market