stock market

S&P 500

Navigating ‘S&P 500 Envy’: Balancing Your Portfolio in a Bull Market

John Paul / May 22, 2024

When stocks are climbing and bonds are lagging, it can be difficult to convince investors of the importance of diversification. With the S&P 500 up nearly 12% year-to-date in mid-May and the Dow Jones Industrial Average reaching 40,000, many investors experience “S&P 500 Envy,” comparing their returns to these impressive benchmarks. In recent years, when both stocks and bonds were down, this wasn’t as much of an issue. However, similar conditions in 2018 also sparked “S&P 500 Envy.” BlackRock addressed this by creating a presentation for financial advisors to show that despite sometimes lower short-term returns, diversified portfolios often perform better over the long run. An updated graphic from 2023 illustrates that during years like 2000-2002, 2008, 2020, and 2022, when the S&P was down, diversified portfolios lost less. Conversely, from 2009-2019 and in 2023, when the S&P rose significantly, diversified portfolios grew slightly less. Over time, however, these portfolios outperformed the S&P, proving that “diversification can work, even when it feels like it’s losing.” Nicholas Olesen from Kathmere Capital Management highlights that advising clients on diversification is tougher when the S&P performs well over a long period. He addresses “recency bias,” the tendency to believe that recent trends will continue indefinitely. This bias can lead investors to abandon their diversified portfolios in favor of the booming S&P, only to suffer during downturns. Olesen argues that a mix of investment types is best for the long term, hedging against economic fluctuations. He explains that diversification isn’t about having the top-performing portfolio right now but achieving long-term financial goals. Ross Haycock from Summit Wealth Group echoes this sentiment, reminding clients not to “put all your eggs in one basket.” When investors shy away from diversification, they’re often avoiding bonds due to recent poor performance. However, they overlook the consistent, guaranteed yields bonds provide. Despite short-term market value fluctuations, holding bonds to maturity ensures they retain their value and generate income. This “statement shock” from seeing lower short-term returns compared to the S&P can drive emotional decisions. Advisors stress the importance of focusing on long-term, time-weighted returns and sticking to a well-considered investment plan, rather than reacting to daily market changes. In summary, while the allure of high stock returns is strong, maintaining a diversified portfolio is crucial for long-term financial health, helping to mitigate risks and smooth out the ups and downs of the market. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

S&P 500

Wall Street Strategists Scramble to Update S&P 500 Projections Amid New Highs

John Paul / May 21, 2024

Wall Street’s top strategists have been caught off guard by the stock market’s record-setting rally, leading many to quickly revise their year-end S&P 500 targets. In 2024, at least 11 firms have raised their forecasts, with BMO Capital Markets and Deutsche Bank recently increasing their targets to 5,600 and 5,500, respectively. BMO’s forecast, the most optimistic among major banks, suggests a potential rise of more than 5% from current levels. As 2024 began, Wall Street expected modest gains after a strong 2023. Despite a brief dip in April, stocks have continued to climb, driven by significant gains in large-cap tech stocks, hitting multiple all-time highs. This surge has even turned notable bear Mike Wilson of Morgan Stanley bullish, now projecting the S&P 500 will reach 5,400 by mid-2025, a sharp shift from his previous forecast of 4,500 by year-end. Currently, J.P. Morgan’s Dubravko Lakos-Bujas stands as one of the few remaining bears, with a year-end target of 4,200, indicating a potential 21% drop from current levels. The average year-end target from strategists is now 5,289, a slight decline from current levels, up from an earlier average of 5,117. Despite some strategists revising their forecasts upward, Wall Street generally remains cautious due to the uncertain interest-rate environment. Andrew Greenebaum of Jefferies notes that historically, the S&P 500 performs well when Wall Street forecasts downside, averaging 6.3% gains over the next six months and 13% over the next year. Bottom-up estimates, which aggregate median target prices from industry analysts, are more optimistic. FactSet’s John Butters projects an 11% increase in the S&P 500 over the next 12 months, with a target price of 5,856.09. Consumer discretionary and energy sectors are expected to see the largest gains, while utilities are forecasted to lag. On Monday, U.S. stocks were mostly higher, beginning a quiet week for economic data. The Dow Jones dipped 0.5% after surpassing 40,000, while the S&P 500 rose slightly to 5,306, and the Nasdaq Composite increased by 0.6%. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Dow

Dow 60,000 and S&P 500 8,000? A Massive Earnings Surge Might Make It Happen

John Paul / May 20, 2024

Last week, the Dow Jones Industrial Average surpassing 40,000 marked a significant milestone for investors. However, top Wall Street forecaster Ed Yardeni envisions even larger gains ahead, driven by strong earnings. Ed Yardeni, chief investment strategist at Yardeni Research, informed clients that the DJIA could surge by 50% to reach 60,000 by 2030, while the S&P 500 might climb to 8,000. The Dow closed above 40,000 for the first time on Friday. This forecast implies a 7% compound annual growth rate for the Dow and 7.1% for the S&P 500. Yardeni stated, “These targets could be met with a forward P/E of 20 and forward earnings at $400 per share, up 60% from an estimated $250 per share this year. We believe this is achievable in our Roaring 2020s scenario.” Yardeni’s Roaring 20s scenario assumes S&P 500 companies will report annual earnings per share growth of at least 8.8%, the historical average since 1936. If the growth rates of nominal and real GDP exceed their post-1940s averages of 6.3% and 3.1%, respectively, EPS growth could accelerate. According to Yardeni, “This could happen if productivity grows faster than its 2.0% average since 1951, as we expect in our Roaring 2020s scenario. Higher-than-expected productivity growth would lead to higher-than-expected real GDP growth, lower unit labor costs, increased wages relative to prices, and improved profit margins.” Industry analysts are increasingly optimistic, with consensus revenue and earnings estimates suggesting profit margins of 12.6% this year, rising to 13.6% and 14.4% over the next two years. Last December, Yardeni predicted the S&P 500 would reach 6,000 within two years. He accurately forecasted a rally for the index last year, and his 5,400 target for the S&P 500 for 2024 is among the highest on Wall Street. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

S&P 500

Resist the FOMO: Navigating S&P 500 Records Without ‘Envy

John Paul / May 18, 2024

When stocks are booming and bonds are lagging, as they are now, it can be tough to convince investors that diversification is still essential. With the S&P 500 up nearly 12% year-to-date in mid-May and the Dow Jones Industrial Average hitting 40,000, many investors experience “S&P 500 Envy” if their returns fall short of these benchmarks. This sentiment wasn’t an issue in recent years when both stocks and bonds were down, but a similar situation occurred in 2018, fostering the “S&P 500 Envy” concept. BlackRock even created a presentation to help financial advisers address this with clients, demonstrating that while a diversified portfolio might underperform the S&P 500 in the short term, it often yields better long-term results. A key graphic from this presentation showed that during years like 2000-2002, 2008, 2020, and 2022, when the S&P was down, a diversified portfolio also declined but by a smaller margin, leading to investor dissatisfaction. Conversely, from 2009 to 2019 and in 2023, when the S&P surged, a diversified portfolio grew more modestly, causing envy. Over the long run, however, the diversified portfolio outperformed the S&P, proving that “diversification can work, even when it feels like it’s losing.” Nicholas Olesen, a certified financial planner with Kathmere Capital Management, reinforces this point. He advises that diversification hedges against economic fluctuations and addresses recency bias, the tendency to believe recent trends will continue indefinitely. Olesen emphasizes the importance of a balanced approach tailored to individual investor needs and sticking to this plan despite market volatility. Ross Haycock, a certified financial planner with Summit Wealth Group, also champions diversification, invoking the timeless wisdom: “Don’t put all your eggs in one basket.” He notes that diversification discussions are easier with long-term clients who have experienced market cycles, while newer clients may need more reassurance during turbulent times. One common mistake investors make when shunning diversification is focusing solely on bond prices rather than yields. Despite bonds underperforming in recent years, they still generate consistent, guaranteed yields, especially when held to maturity. Olesen warns against “statement shock,” where investors see a small daily return and compare it unfavorably to the S&P’s gains without considering the overall yield and long-term value. Advisers stress the importance of following a well-considered plan and avoiding hasty decisions based on short-term market movements. By doing so, investors can avoid FOMO and ensure their portfolios are well-positioned for long-term success. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Dow Jones

Record-Breaking Moment: Dow Jones Surpasses 40,000, Fails to Maintain

John Paul / May 17, 2024

Hold on to your hats. The Dow Jones Industrial Average briefly traded above 40,000 for the first time ever on Thursday but ended the day shy of a milestone that investors said could further boost bullish spirits on Wall Street. “Breaking the 40,000 barrier is a big psychological boost for the bulls, as round numbers hold special significance in people’s hearts and minds,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said in emailed comments. The Dow closed the day near 39,869, a loss of around 39 points, or 0.1%, after hitting a session high of 40,051.05 around 11 a.m. Eastern time. Big, round-number milestones can attract attention to a market rally. Indeed, it’s hard to overstate the hype that accompanied the Dow’s first-ever push above the 10,000 level on March 29, 1999. The move spawned a cottage industry in commemorative merchandise, particularly hats emblazoned with “Dow 10,000” that can still be found on eBay. The prospective Dow 40,000 milestone, however, isn’t prompting Americans to party like it’s 1999. Public interest in the record stock-market rally appears tepid at best, analysts have noted. The Dow, dating back to 1896, remains the measuring stick of the U.S. stock market among the general public, although investment professionals view the S&P 500, launched in 1957, as the true large-cap benchmark. Searches for “Dow Jones” on Google have trended consistently lower since peaking in June 2022, which marked an initial low in that year’s brutal selloff, observed Nicholas Colas, co-founder of DataTrek Research, in a note last week. The peak in searches came as the Federal Reserve was preparing to launch a series of outsized interest-rate increases. As stocks sank amid rising recession fears, the American public took notice, Colas said. Since then, interest has trailed off even as stocks have returned to record territory. “To the degree to which Americans think the stock market is a sign of general economic health, they are not seeing what could be considered an upbeat message,” he wrote. “The idea that stock prices are a transmission mechanism between markets and consumers only seems to work in one direction.” For investors, meanwhile, there may be little to glean from such advances in themselves. “I think, if anything, it’s more nostalgic and symbolic than it is a meaningful tell for a professional investor,” Eric Freedman, chief investment officer at U.S. Bank Wealth Management, said in a phone interview in March, when the Dow came within a whisker of the 40,000 threshold but failed to surpass it. The Dow’s attempted push above 40,000 comes amid a broader rally that saw the blue-chip gauge, the S&P 500, and the Nasdaq Composite all close at record highs on Wednesday. The S&P 500 cleared a big milestone of its own earlier this year, topping the 5,000 level for the first time. Historic advances for the S&P 500 tend to garner less attention than those for the Dow, even though the S&P 500 is far more relevant, representing a much bigger portion of the investable U.S. stock market. The Dow ended above the 30,000 milestone for the first time on Nov. 24, 2020, after stocks roared back from the pandemic bear market seen earlier in the year. Including Thursday, it’s been 873 trading days since the Dow first ended above 30,000, according to Dow Jones Market Data. It took the blue-chip gauge 966 days to clear the 30,000 milestone after first closing above 20,000 on Jan. 25, 2017. Of course, each successive milestone is less impressive in percentage terms. The move from 30,000 to 40,000 represents a 33.3% gain. It took a 4,486 trading-day journey for the blue-chip gauge to double from 10,000 to 20,000. While 10,000-point milestones aren’t frequent occasions, it’s easy to see why the first push above 10,000 seemed special. It took over a century—28,313 trading days to be exact—for the gauge to enter five-digit territory. Meanwhile, public indifference to the 40,000 milestone may carry at least one bullish, contrarian implication for the market, said DataTrek’s Colas: “No one can accuse the recent U.S. equity market rally of being fueled by rampant interest in stocks. This is not the 1990s. Not even close.” John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

inflation data

Inflation Data Released Ahead of Schedule, Markets Shrug

John Paul / May 16, 2024

Data on U.S. consumer prices, the most anticipated report of the month, was released early, yet it appears the market didn’t notice. The Bureau of Labor Statistics (BLS) reported that a subset of the files was accidentally posted on its website about 30 minutes before the scheduled release time, around 8 a.m. Eastern. The BLS did not clarify which data were released or if this subset would have been sufficient for informed investors to take action. An investigation is now underway. “BLS has alerted the Office of Management and Budget and the Department of Labor’s Office of the Inspector General about the incident. BLS takes its data security seriously and is conducting a full investigation into its procedures and controls to ensure the incident is not repeated,” the agency stated. An examination of key futures contracts and currency movements showed minimal activity around 8 a.m. Eastern on Wednesday, with significant movements occurring at the official release time of 8:30 a.m. This suggests that very few, if any, investors noticed the early release. The report indicated that the Consumer Price Index (CPI) increased more slowly than expected, news that subsequently drove stocks and bonds higher. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com