📈A Pretty Okay Week

Stocks this week did… pretty okay!

Which is welcome news, considering the last three months have been a bit bumpy, to say the least.

Though it’s been a purdy good year, so far:

(though not if you’re in the Dow Jones).

NDX = the Nasdaq 100, an stock index that leans more toward tech-oriented growth stocks. The INDU = the Dow Jones, which leans more toward cash-flow positive, mature stocks. SPX = the S&P 500, which is supposed to split the difference but has leaned toward growthy, techy names over the past few years.

Does this year’s performance mean tech is back?

YTD it sure looks it. However, note to what degree the largest names - Apple (AAPL), Microsoft (MSFT), Google (GOOG), Amazon (AMZN), Facebook (META), and Tesla (TSLA) are driving returns relative to all the other names in the S&P 500.

The bull case here is pretty simple: these are the names that have driven returns for the past decade or so. Avoid them at your own peril. A simple momentum philosophy (winning stocks keep winning) would support holding these names, so however you access the largest US stocks, keep doing that (as cheaply as possible).

The bear case is more… complicated. If we use price/earnings ratio, which has its limitations, but does the job for our discussion here, a lot of these stocks are dramatically overvalued.

Same heat map, but now for P/E ratio:

One way to think about the P/E number is the number of years it will take to recoup your investment. So, NVidia sporting a P/E of 107.85x means you ain’t making your money back in this lifetime. Framed from a value standpoint, every big name is a stay-away. Or, more accurately, the names that become attractive change to stocks like Berkshire Hathaway (BRK), JPMorgan (JPM), and ExxonMobil (XOM).

What’s the upside?

Changes are, if you read this newsletter, you aren’t the daytrading type, so the answer is, as it usually is, to do nothing. Most of you aren’t retiring anytime soon, so keep plugging your 401k money in the market and ride it out.