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Market Content, Optimism

Forty Thousand. That’s the level the Dow Jones Industrial Index passed last week—an all-time high. The S&P 500 is also at record levels. All seems good. Maybe too good.

The stock market, as defined by either the Dow Jones Industrial Index or the S&P 500, seems to push higher on a weekly basis. This may lead to complacency and cause some to get the urge to go “all in” to not miss out on the party. However, the returns have been concentrated in just a small number of stocks.

If we look back at 2023, the seven largest stocks in the S&P 500 by market capitalization (Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta, and Tesla)—aka the Magnificent Seven—accounted for 83% of the index’s 26% return and all of the earnings growth. Meaning the other 493 stocks in the S&P 500 were up only 5% and, in total, experienced declining earnings.

So far this year, the six largest stocks (the seven mentioned above minus Tesla) account for nearly two-thirds of the S&P 500’s 12% return. The breadth remains narrow while valuations, when looking at the price-to-earnings ratio (P/E), remain expensive at 21x.  Historically, when the P/E ratio is at these levels, the return over the next five years has averaged around 5% per year, and the possibility of a market correction is elevated. Perhaps one could argue this is the time for the other 493 stocks to participate, but through the first quarter of 2024, earnings declined again for this group. We would like to see earnings grow, not decline, to validate an outlook for significantly higher stock prices from this broader group.

An important lesson we have learned over the decades is that stability breeds instability. When the stock market appears to have no limit to how high it can go, it’s usually the time to take a more defensive stance and ensure investment portfolios have the right asset allocation to reduce the impact of a potential market decline. To be sure, we are not market timers trying to call a market top. But we are seasoned and trained to be alert when things do not feel quite right.

Regardless of where we are in the market cycle, the goal of the investments we manage for our clients is to help them achieve their financial goals. We aim to generate superior returns over the long-term with the right balance of risk and return. Your portfolio is uniquely curated with a mix of investment types and strategies designed with your individual goals, needs, and risk tolerance in mind. Beyond public companies (stocks), we own bonds and money market funds to provide a source of liquidity and stability in turbulent markets. For those with minimal liquidity needs and a longer-term investment horizon, we may also incorporate alternative asset classes, such as private real estate, private credit, and will soon add private equity offerings to the mix. These alternative assets are designed to provide attractive risk-adjusted returns and further diversification benefits.

Rest assured your team at Tschetter Group is proactively reviewing and making adjustments to your portfolio as market conditions, your needs, and your goals change. We review and rebalance allocations as an ongoing part of keeping your investment portfolio aligned and are committed to staying in touch with you along the way. Please don’t ever hesitate to reach out if you have questions or concerns.

We are privileged to be your partner on this journey, with a steady hand on the wheel to navigate the market ups and downs.

With Optimism,




Sources: J.P. Morgan, FactSet, and Tschetter Group

Important Disclosures

The content of this article is provided for general information purposes only and is presented solely as our opinion. The information was compiled from sources that we believe to be reliable, however, we cannot guarantee its accuracy, completeness, or timeliness. This article is based on the information available to us as of the date of this article and may change at any time. Tschetter Group does not provide tax and legal advice. Please consult your legal and tax professional for specific information.

Tschetter Group (“TG”) is a registered investment adviser with the Securities and Exchange Commission. The information provided by TG (or any portion thereof) may not be copied or distributed without TG’s prior written approval. All statements are current as of the date written and does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Different types of investments involve varying degrees of risk. Risk Disclosure Statement: All investments include a risk of loss that clients should be prepared to bear.