The Stock Market is near Correction Levels

[mitchjav]

The Stock Market is near Correction Levels

There's an article in Forbes this week arguing that without tech stocks + NFLX + AMZN + GOOG (all of which are apparently not classified as tech), the S&P 500 would be near correction levels. Points out how the index is being increasingly overwhelmed by tech. With S&P index funds being one of the most popular investments, many people are very dependent on tech companies continuing success. Given that growth has its limits, the author suggests that the S&P 500 equal weight fund would be a better reflection of overall market performance and that it would be better to hitch our wagons to this measure. Interested in everyone's thoughts?

 

[Markola]

Can you link the article? Here are the Vanguard S&P 500 Fund (VFIAX) sector weightings and it’s about the same in the total U.S. stock market index. I seem to recall financials leading a few years ago and now they are second place, and energy has been strong in the past. If tech is the lead dog right now, it seems like that fits current reality and I don’t know that it’s a problem. I would not want to own an equal-weighted fund and will stick with the tried and true.

 

[dixonge]

There's an article in Forbes this week arguing that without tech stocks + NFLX + AMZN + GOOG (all of which are apparently not classified as tech), the S&P 500 would be near correction levels. Points out how the index is being increasingly overwhelmed by tech. With S&P index funds being one of the most popular investments, many people are very dependent on tech companies continuing success. Given that growth has its limits, the author suggests that the S&P 500 equal weight fund would be a better reflection of overall market performance and that it would be better to hitch our wagons to this measure. Interested in everyone's thoughts?

My equities are 100% equal-weight S&P index fund (RSP). Looking at some historical charts, it appears that, while tracking fairly closely, the S&P gains on RSP during big run-ups. From the bottom of the COVID 'correction' this gain is around 3%, if I am reading this chart correctly. I initially chose this path to soften any dependency on these large companies. It is a very mild form of AA, and I'm not entirely sure it was necessary or beneficial...

 

[cargetter100]

There's an article in Forbes this week arguing that without tech stocks + NFLX + AMZN + GOOG (all of which are apparently not classified as tech), the S&P 500 would be near correction levels. Points out how the index is being increasingly overwhelmed by tech. With S&P index funds being one of the most popular investments, many people are very dependent on tech companies continuing success. Given that growth has its limits, the author suggests that the S&P 500 equal weight fund would be a better reflection of overall market performance and that it would be better to hitch our wagons to this measure. Interested in everyone's thoughts?

Without actually reading the article (because I'm too lazy, sorry), I would want to know if this Author is so certain of his opinion, has he "shorted" or bought "puts" on the FAAANNNGGMMM (or whatever they are) techie stocks and bought calls on the other parts of the market? I.e. did he put his money where his mouth is? If not, it's just more useless financial porn fluff.

 

[cargetter100]

My equities are 100% equal-weight S&P index fund (RSP). Looking at some historical charts, it appears that, while tracking fairly closely, the S&P gains on RSP during big run-ups. From the bottom of the COVID 'correction' this gain is around 3%, if I am reading this chart correctly. I initially chose this path to soften any dependency on these large companies. It is a very mild form of AA, and I'm not entirely sure it was necessary or beneficial...

Have you done an analysis of an equal weight strategy vs. (for example) just buying a small cap, small cap value, or mid cap fund, or some combo of funds? Realizing that in buying an "equal weight" fund, you aren't investing based on any recognized "factor" that research has shown governs market returns. It's completely arbitrary. There's no "theory" behind it. What's the point of having the same amount of each stock? If you want to tilt towards small cap or small cap value, then you should still buy a total market index, but combine that with a small cap or small cap value fund; or mid-cap fund; or some combination. RSP is totally arbitrary.

 

[OldShooter]

... Interested in everyone's thoughts?

Well my thoughts are that I would like to see a ten year track record of the author's market advice, laid out against what actually happened. Like @cargetter, I would also like to see what is in the author's portfolio.

Warren Buffet's thoughts:

"I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two."

“The only value of stock forecasters is to make fortune-tellers look good."

 

[mitchjav]

Can you link the article? Here are the Vanguard S&P 500 Fund (VFIAX) sector weightings and it’s about the same in the total U.S. stock market index. I seem to recall financials leading a few years ago and now they are second place, and energy has been strong in the past. If tech is the lead dog right now, it seems like that fits current reality and I don’t know that it’s a problem. I would not want to own an equal-weighted fund and will stick with the tried and true.

 

[OldShooter]

Here's the Link:

https://www.forbes.com/sites/danrun...arket-is-near-correction-levels/#791714b6dee7

Well, I am impressed. "Every week, I put out two stories to help explain what’s going on in the markets."

A couple of possibilities:

1) He is a supreman. With billions of shares traded daily he must be interviewing thousands of traders a week to actually understand what's going on.

2) He is the usual BS artist who, being unable to make reliable money by investing, instead earns his living by making up and selling fables.

 

[NW-Bound]

There's an article in Forbes this week arguing that without tech stocks + NFLX + AMZN + GOOG (all of which are apparently not classified as tech), the S&P 500 would be near correction levels. Points out how the index is being increasingly overwhelmed by tech.

Having become an active investor in the late 90s, I was scratching my head in late 1999-early 2000 at the split between the Dow, the S&P, and the Nasdaq. It was a clear sign of a tech bubble. There was a lot of talk about that, but as most investors I was hanging on to get a bit more gain. Of course, we know how that worked out.

Some people say that the current market is nowhere as frothy as then. They point out that the current P/E ratio of the leading stocks, most of them anyway, is not so unreasonable to not be able to explain away by the revenue and profit growth of these stocks. Back in 2000, many companies have no net earnings. They in fact had a price-to-sale ratio much higher than the traditional price-to-earning ratio. And now, the leading tech companies all have earnings, and they are able to not getting pummeled by Covid-19 as badly as some other sectors, such as retail and energy for example. Hence, investors flock to the survivors.

And so, the question is whether the advantage of these stocks is now already built into their price, and their future gain will be more limited, while other depressed sectors still have room to recover. That question is on the mind of many active investors. Of course, only time will tell us the answer.

With S&P index funds being one of the most popular investments, many people are very dependent on tech companies continuing success. Given that growth has its limits, the author suggests that the S&P 500 equal weight fund would be a better reflection of overall market performance and that it would be better to hitch our wagons to this measure. Interested in everyone's thoughts?

Most of my portfolio has been in individual stocks and sector ETFs, although I try to be diversified. I will not comment on the equal-weight fund because I have not studied it. I am not an indexer however, and can offer what I see from where I stand.

I don't trade as frequently because I am never sure of where the market is heading. However, I like to watch my holdings, and I can see after the fact the sector rotation from growth to value and vice versa. The problem is that it is not easy to time this to make money. I do try to move around different sectors, but never go all in/out. Even when I do not trade, I still like to watch my positions to see how the race is unfolding.