Since I last checked in the major market indexes and averages have made new highs. There are reasons to expect even better days ahead. Two will sound familiar.
Last year I lamented the market’s focus on seven big-cap technology stocks while pretty much ignoring most of the 493 other stocks in the S&P 500. That began to change late last year and what in the trade is called rotation is good for us.
Most stocks are participating in this year’s advance. Our stocks-only Advance Decline Line reached an all-time high and the Invesco S&P 500 Equal Weight ETF has a better year-to-date return than the S&P 500 index.
The other reason plays equally well for us. Stocks generally fall into one of two broad categories, growth and value. When the focus among investors shifts from one to the other it often stays in place for years. It changed early this year when value stocks including financials began to outperform growth issues, the big-cap technology stocks primarily. That rotation was good news for us.
Few of my core holdings are in the growth column. Most are good values and soon will be even better. I’ve written a lot about energy stocks. Add to those some financials and drug stocks with attractive yields.
Put the two trends together. More stocks are participating in the bull market and investors are buying issues that pay dividends and are less volatile than pure growth issues (think memory stocks). There is a third reason stocks will continue higher in fits and starts.
There is a mountain of uninvested cash in money-market funds earning little, or nothing once inflation and taxes are factored in. For most, taxes on money market earnings are higher than taxes on dividends from most corporate bonds. More and more cash will find its way into stocks.
Those are unquestionably bullish trends for stocks as a whole. Of course, as you have read on these pages for years, future stock performance will depend on future earnings. Thanks in part to AI, there is earnings growth ahead. Most companies will become more efficient (read profitable).
Earnings are winning the day. As of this writing, the 384 S&P 500 companies that have reported (I’m removing Micron and Alphabet) show earnings growth of 19.6 percent. That’s a number typically seen when the economy is exiting a recession. Corporate America continues to win the day.
David Vomund is an Incline Village-based fee-only money manager. Information is found at www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
