M2 Money Supply\nYear-Over-Year Growth in the U.S.<\/strong><\/p>\n\n\n\n Source: Federal Reserve Bank of St. Louis2<\/sup><\/em><\/strong><\/p>\n\n\n\n Why this matters: <\/em>The\nworld is awash in liquidity, and central banks show few signs of letting up. If\nanything, central banks are likely to expand balance sheets even further in the\ncoming months and quarters, which by itself is a bullish indicator, in my view.\nI have written before that this liquidity backdrop makes it difficult to be\nbearish, even if economic data remains weak in the near-term. The well-known\nphrase \u201cdon\u2019t fight the Fed\u201d applies.<\/p>\n\n\n\n _________________________________________________________________________<\/p>\n\n\n\n In Times Like These, Focusing on Data and Not Media Hysteria is Key!<\/a><\/strong> If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0 _________________________________________________________________________<\/p>\n\n\n\n Fact #2: <\/strong>During\nthis ongoing market rally, the five biggest U.S. companies have seen their\nvaluations climb to over 30x earnings.4<\/sup> The spread between these\nfive companies\u2019 valuations, and the remaining companies in the S&P 500\u2019s\nvaluations, is wide and getting wider. <\/p>\n\n\n\n Why this matters: <\/em>Many\nreaders have likely seen the stat-lines before \u2013 the biggest U.S. companies,\nlargely in the realm of technology, are disproportionately driving returns for\nthe S&P 500. But the real reason these runaway valuations matter, in my\nview, is that the markets tend to mean revert over time. The last time the\nspread between the biggest companies\u2019 valuations and the remaining S&P 500 companies\u2019\nvaluations were this wide was in 2018. A major market correction that year\nnarrowed the gap quickly. <\/p>\n\n\n\n Fact #3: <\/strong>Five of\nthe largest companies in the S&P 500 – MSFT (Microsoft), AMZN (Amazon),\nGOOG (Google) & FB (Facebook) – make up nearly 25% or a quarter of the\nS&P 500’s total market cap. For the Russell 1000 Growth Index, these five\nstocks make up 34% of the index. For the NASDAQ, the number swings up to 48%!5<\/sup><\/p>\n\n\n\n Why this matters: <\/em>Though\nit may feel unsustainable for a handful of companies to account for such a\nlarge percentage of an index\u2019s market capitalization, I would note that a\ncorrection may ultimately lead to a rotation of capital from high valuation\nnames to low valuation names. In other words, all ships do not necessarily have\nto sink if the biggest names undergo some selling pressure. <\/p>\n\n\n\n Fact #4: <\/strong>Even\nthough the S&P 500 is nearing new all-time highs, only about a quarter of\nstocks in the index are within 5% of their own all-time highs. Nearly half of\nindex constituents are over 20% from their all-time highs.6<\/sup><\/p>\n\n\n\n Why this matters: <\/em>The\ntakeaway here is similar to the takeaway above, in that a small percentage of\nstocks have been driving total return for the index. I expect some mean\nreversion moving forward, and thus believe a diversified approach is very\nimportant in the current environment.<\/p>\n\n\n\n Fact #5: <\/strong>At the\nbeginning of earnings season, S&P 500 earnings were forecast to decline\n-43%.7<\/sup> The actual outcome has been better than expected.<\/p>\n\n\n\n Why this matters: <\/em>Anytime\noutcomes are better than expectations \u2013 especially when it comes to earnings \u2013 stock\nprices tend to go up. I think it is fair to assess that better-than-expected\nearnings have been contributing significantly to the current rally. Total earnings\n(or aggregate net income) for the 445 S&P 500 members that have reported as\nof this writing are down -34.8% on -10.9% lower revenues. But 80.2% of these\n445 index members have beaten consensus EPS estimates and the corresponding\nrevenue beats percentage is 63.1%, with a blended beats percentage of 56.4%.8<\/sup><\/p>\n\n\n\n Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n Hopefully\nreaders find these data points and takeaways helpful in making sense of the\ncurrent market. The bottom line here may be that in a world awash in liquidity and\nwith companies doing a little better than expected, the case for a\nwell-diversified portfolio is paramount. In short, now is not the time to go\nall-in on just the biggest U.S. tech companies, nor is it the time to bet\nagainst the U.S. economy, in my view.<\/p>\n\n\n\n![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/image-1-of-1-1-1024x395.png\")
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We have passed the middle of 2020, and it has been a chaotic year of events to say the least. Still, there is money to be made. So instead of focusing on the \u201cwhat if\u2019s\u201d that saturate the media, I recommend staying calm and focusing on the fundamentals. To help you do this, I am offering all readers our just-released Stock Market Outlook report. This report contains some of our key forecasts to consider such as:<\/p>\n\n\n\n
IT’S FREE. Download the Just-Released September 2020 Stock Market Outlook<\/a>3<\/a><\/sup><\/strong><\/p>\n\n\n\n