Over the weekend, I was looking at some research from JP Morgan that showed the percentage weight of the top ten stocks in the S&P 500 over time, and I admit that I was surprised. When we started Acropolis, 20-years ago in August, the top ten stocks made up about 24 percent of the index. I thought that was pretty high back then and was one of the reasons that… Read More
Markets have been testing the Fed ever since Chair Powell indicated that rates are headed higher and their balance sheet will start shrinking. There’s nothing new about this. In the 1980s, then-Fed Chair Alan Greenspan responded to the stock market crash with monetary policy. Ever since then, markets have believed, with increasing strength, that the Fed would bail out the market. In fact, the phenomenon was given a name: the… Read More
The stock market is suffering a setback, mostly due to the change in tone from the Federal Reserve. That isn’t the whole story, in my opinion, however, because I don’t think it fully explains why the worst returns have been in the hottest part of the market, as I outlined last week. Although I don’t have any particular evidence, I think that the selloff is related to deleveraging by hyper-aggressive… Read More
I know I’ve said this before, but I’ll repeat again what Carly Simon sang in her 1971 hit Anticipation: “These are the good old days.” WE now have 96-years of high-quality market data, and a quick look at the numbers showed a few interesting things: The nominal change in the S&P 500 was in the 92nd percentile of all rolling three-year returns. Inflation annualized at 3.6 percent during that time,… Read More
I wrote a lot about inflation in 2021 for pretty obvious reasons. I also wrote that bonds are difficult investments to own right now because the expected inflation rate over the coming decade is more than the current interest rates. After receiving a lot of inquiries about bond alternatives like REITs, utilities, and the like, I wrote an article shooting down those too. This article is a variant on that… Read More
Friday was yet another reminder of how quickly things can change in life and in markets. The Omicron news is concerning, so it’s natural for markets to react sharply as investors take in new information. Stock markets were down sharply on Friday with the Dow down 2.5% and the S&P 500 down 2.3%. The price of a barrel of oil also fell more than 10% on the day. It’s also… Read More
Over the past few years, one of the more popular categories of mutual funds has been so-called ‘alternative’ funds. Alternative investments, broadly defined, are strategies that seek returns that are uncorrelated from traditional investments like stocks and bonds. While alternative investments were once largely confined to private partnerships, they are now popular in mutual funds, or what the industry refers to as ’40 Act Funds. Following the 2008 financial crisis, alternative mutual funds… Read More
The big selloff last week centered around a massive Chinese real estate developer, Evergrande, which is almost certainly insolvent. Although not many folks around here (including me) had ever heard of Evergrande, the company is the second-largest developer in China and ranks 122nd on Fortune’s Global 500. According to Wikipedia, in 2020, Evergrande reported revenues of $78.4 billion and profits of $1.25 billion, which is a fairly slim profit margin… Read More
Last week’s Insight about the risks associated with so-called bond alternatives with higher yields prompted a lot of feedback, which I always appreciate. Here’s the article in case you missed it. One curious reader asked a great question: what if we allocated some of the bond money to a few of these higher-yielding options? That was enough to send me down the rabbit hole, looking at all kinds of higher-yielding… Read More
This past week, I was meeting with a client and the discussion turned to the low yield bond environment. The client has a pretty common question – isn’t there something that yields more? The answer is yes, there are a lot of things that yield more than the investment-grade bond market. We could buy junk bonds, emerging markets bonds, or other questionable issuers. These kinds of bonds aren’t inherently bad,… Read More
