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S&P 500 Reaches 5,000 To Mark Record For US Stocks

By Paul J. Carroll, CFP®February 13, 2024Videos

 

Last week, the S&P 500 hit 5,000 for the first time in history. Is this a transient thing, or is this a new normal?

The S&P 500 hit the 5,000 mark on Thursday. The markets closed Friday over 5,000. They’re up 5% year-to-date. That’s pretty nice for six weeks. However, all of this move has been driven by two companies, NVIDIA and Meta. NVIDIA makes the chips that are so popular for gaming and also AI devices. Meta of course, is Facebook. They’re both up 30% year-to-date. It’s an even more focused rally than we saw last year. In fact, the equal weighted version of the S&P 500 where each stock is given the same weighting rather than what we call cap weighting, the S&P 500 has barely moved below its peak of 2021. In other words, these few companies are leaving the rest of the market behind.

Now there’s another thing called the VIX Volatility, and the greater the volatility the VIX, the greater the likelihood of a market correction in the near future. The VIX volatility is relatively low. We’re not expecting a sudden correction anytime too soon, but certainly, this market looks like one that’s beginning to lose steam. Now, what a difference a week can make, because this week, inflation numbers are at 3%, showing that the economy is still running on all eight cylinders, and therefore the Fed is not likely to be lowering interest rates anytime soon. No lowering of interest rates is not necessarily bullish for the S&P 500. A lot of people are struggling with an inflation of 3%. They find it hard to believe when housing prices are sticky, and food inflation is sticky. But what’s happened is gas and energy prices in general have dropped fairly notably.

I think what’s most important to understand as an investor, is if you look at the headline, it’s very tempting to go, “I want more of that. I want more of the S&P 500.” Well, if you get more of the S&P 500, what you’re getting more of is Meta, NVIDIA, and the other Magnificent Seven. You’re getting more of the opportunity for just a handful of stocks to give you a beating in the market in the coming months. This is why diversification can be so difficult when we’re sitting on our hands looking at these few companies doing so well. But if you don’t want to suffer regret, stay the course. Maintain that diversification, and we wish you the best of investment success. Thank you.

 

Sources
Inflation: Consumer prices rise 3.1% in January, defying forecasts for a faster slowdown [Yahoo!Finance]
S&P 500 reaches 5,000 to mark record for US stocks [Financial Times]

Founder & CEO at Avion Wealth

Paul is the founder and CEO of Avion Wealth, LLC. He leads a team of wealth managers in building and executing financial plans for high net worth individuals and families. Contact Avion Wealth to speak with a financial advisor.