The world feels a bit more positive this week on many fronts. Vaccine trials are trending in a positive manner, additional stimulus measures appear to be on the way, and second quarter earnings continue to be better than expected. The corporate earnings piece is not a huge surprise considering the low expectations that were in place. Thursday’s earnings alone included the big powerhouse tech names like: Apple, Amazon, Alphabet, and Facebook. These four companies represent over 15% of the S&P 500 Index. Remember, the S&P 500 Index is a market cap weighted index. If you add in Microsoft, five stocks alone make up over 21% of an index that is comprised of over 500 diverse companies. Most investors think that by purchasing an S&P 500 fund they get true diversification of the best blue-chip companies. The reality is that the top 1% of the companies by market capitalization in the S&P 500 make up over 1/5 of the index’s market cap. Something to consider!
We believe this is creating a big disconnect in the overall market. If you look at an equal-weighted S&P 500 Index, meaning all 500 stocks, representing the same percentage, the index is down over 8% YTD. While the S&P 500 Index is virtually flat for the year, it’s been mostly driven by the big 5 tech names. We continue to keep an eye on this growing trend. Another interesting note we want to point out is how much cash is currently sitting on the sidelines. An article we found from back in June stated that Americans currently have over $4.6 trillion parked in money market funds. This is the largest amount of savings sitting in bank accounts dating all the way back to 1992. This is money that can easily be pushed into the market when investors feel comfortable. We are having daily discussions with our clients and a recurring theme across the board is that overall spending is down significantly. We tend to believe that the true “savings” rates are only continuing to grow right now. The idea of having cash sitting in the bank earning next to nothing is not appealing to a lot of longer-term investors. This theme could certainly be a contributing factor to the overall strength we have seen.
We are excited to announce that Mosaic Asset Partners will be hosting its first live webinar Wednesday, August 19th @ 4pm est. We have been receiving a lot of questions on the current economic outlook and what the 2020 Presidential election will bring for the stock market. We felt it was appropriate to host this event to discuss what this all may mean for you and your investments. Please sign up with the following link. We will provide further details as the day gets a bit closer.
S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.