The Market

It was mostly steady gains on Wall Street last quarter, with record highs achieved by the S&P 500, Nasdaq, and Dow Jones Industrial Average (DJIA). The S&P 500 was up just over 15% mid-year. The DJIA was up, too, although it lagged behind the other growth-oriented indices. The Dow was able to breakthrough the 40,000 level before closing just above 39,000, while the S&P 500 marked the longest streak without a daily 2% drop since the Great Recession.

Nvidia became the largest company by market capitalization in the S&P 500 Index, surpassing Apple. The “Magnificent 7,” which includes Nvidia, Apple, Microsoft, Alphabet (Google’s parent company), Amazon, Meta Platforms (formerly Facebook), and Tesla, collectively dominate the index more than ever before.

Government data shows that consumer inflation, as measured by the Consumer Price Index, peaked year-over-year in June of 2022 at 9.1% and declined steadily throughout 2023. However, it may not feel like it when you purchase goods and services. “Stuff” is still expensive, with service pricing and housing pricing remaining stubborn.

Meanwhile, strength in the labor market, strong consumer spending, and low unemployment have contributed to the belief that the Fed is orchestrating a soft landing and sidestepping a recession.

These seven companies constitute a substantial portion of the S&P 500’s total market value, reflecting the increasing concentration of market power within the tech sector. As of 2024, these tech giants collectively comprise approximately 25% to 30% of the S&P 500, underscoring their outsized influence on the broader market.

The dominance of these tech behemoths has led to a significant skew in the S&P 500’s composition. With technology and tech-adjacent companies holding such a large share, the index’s performance has become heavily reliant on their fortunes. The Magnificent 7 are now often found within almost all large-cap growth and blend mutual funds and ETFs.

To offset this, we are adding to value-oriented positions, while limiting the addition of growth and tech funds so our portfolios are not overexposed to undue market risks. Strategically, we are “buying straw hats in winter.” From a historical basis, value stocks are cheaper than growth stocks. The Russell 1000 Value Index has a forward P/E of 15.3 compared to its long-term average (since 1997) of 14.1. Meanwhile, the Russell 1000 Growth Index has a forward P/E of 28.4 compared to its long-term average of 21.0.

Inflation: Some Good News, But Not Good Enough

US Core Inflation was 3.42% at the end of May. This is down from 3.61% the previous month, lower than the end-of-the-year rate of 3.93%, and well below the rate for May a year ago of 6.02%. However, this is still well above the Federal Reserve’s target of 2%.

The Federal Reserve has indicated that it may consider gradually lowering interest rates if inflation shows sustained signs of abating and economic conditions stabilize. They are walking a tightrope to slow economic growth enough that inflation will cool down but not too much that the economy will fall into a recession.

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The New Year provides many great opportunities to get a financial plan in place or reevaluate your risk profile. The Platt Wealth Management team is here for you to discuss any changes or new milestones in your life. We are always available to assist you with any financial matters and we look forward to continue to serve you along your financial journey.

Warmest regards,
Platt Wealth Management