Recently there has been a great deal of nervous chatter about the state of the stock market. It’s true that market leadership is tight, and a handful of tech and artificial intelligence names account for most of this year’s gains for the S&P 500 and Nasdaq Composite — and the indexes have recently hit record highs. all time highs. But it’s also true – at least for now – that this narrow leadership doesn’t really matter. This is a bull market and it’s a world beater. Earnings in US markets far outpace those in developed and emerging markets around the globe. As of Thursday’s close, the S&P 500 was up about 15% in 2024, while the Nasdaq Composite was up just 19%. That’s a full year’s worth of earnings in about six months. These advances come as the S&P 500’s total return reached 26% in 2023. Bubbles of the Past vs. Today, some observers are drawing comparisons to 1999, when the market soared at the height of the dot-com bubble. Companies like Microsoft, Cisco Systems and Intel were among the biggest gainers in the S&P 500. Of course, the richest stocks today make up a larger portion of the S&P 500’s market value than they did in 1999. It’s also it’s true that today’s dominant stocks are in better financial shape and are growing faster than their high-cap counterparts of more than two decades ago. It is also true that the breadth of the market has narrowed beyond just concerns about concentration. Moreover, the equity-weighted S&P 500 index, with a roughly 4% return in 2024, is well underperforming its equity-weighted counterpart. Line .SPXEW .SPX YTD S & P 500 Index Equal Weighted Vs. S & P 500 in 2024 Having said that, in years past, these kinds of divergences would worry me to the point of distraction. In 1999, I was commenting on the dangers of an imminent market collapse as the dot-com bubble had blown to a size rarely seen in stock market history. The alarm bells that rang in my ears in 1999 and rang again in 2007 amid the real estate and credit market bubbles aren’t going off today—at least not yet. Different circumstances this time With interest rates and energy prices well behaved, the economy remaining resilient and inflation rates falling, it’s hard to get terribly bearish. This is especially because the next interest rate move by the Federal Reserve is more likely to be a decrease rather than an increase. The dot-com and housing bubbles burst as the Fed aggressively raised interest rates. This approach to politics also helped fuel a bear market in 2022, when the S&P 500 fell 19% and the Nasdaq Composite fell 33%. I have friends who complain that the market has become irrational about the enthusiasm for AI-related shows. Nvidia leads that charge, rising nearly 160% in 2024. On Tuesday, its market cap rose to $3.34 trillion, and the chipmaker briefly passed Microsoft to become the most valuable stock. I understand that many people are worried that this is a bubble similar to the Internet mania that started in the 1990s. But I don’t see any signs of public fascination, whether it’s hundreds of AI-related public offerings or relatives of remote who call me to ask if it is the right time to buy a single share. Of course, it is prudent for portfolio management to take some profits on names that have moved so far, so quickly. Rebalancing the portfolio also ensures that no single stock has an undue impact on long-term performance, and is reasonable. Further, while it’s true that many analysts are now raising their price targets on individual stocks and on market averages—often a contrarian indicator—sometimes the crowd is right. It’s a bullish market until further notice and it’s probably too early to take all the chips off the table just yet. CNBC contributor Ron Insana is the CEO of iFi.AI, an artificial intelligence fintech firm.
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