Photo Finish
There are a few stock market sayings that drive me crazy. One is ‘The stock market likes certainty’. I always ask, who doesn’t? Wouldn’t you like to know exactly what is going to happen? I sure would. Has that ever happened? Of course not! The market may like certainty, but certainty never exists.
A corollary to that is ‘The market climbs a wall of worry’. Because nothing is ever certain, that is obviously true, but it is equally true that the stock market collapses on a wall of worry. Were you worried in the Fall of 2008? I sure was, but the stock market was not climbing that particular wall.
We all look for something to lean on to justify our positions, positive or negative, but that doesn’t make them right. We have no idea if the market will be up or down this year. There are legitimate reasons for either case, but in most cases, you should not allow that to influence how you invest. You need to stay invested in a way that is suitable for your risk tolerance.
If you’re retired and have a modest income, your risk tolerance might be very low. Likewise, if you are in your 40’s and entering your prime earnings years, your risk tolerance is much higher. The market being cheap or expensive shouldn’t influence either one. Timing the market requires two good decisions in a row; when to get out and when to get back in. Very few can time the market and if you’re not one of them, we suggest that you don’t try.
With that said, we come into 2025 after a long period of mega cap technology outperformance. This year, we’re looking for more modest stock market returns and the extraordinary focus on technology to ease. In other words, there should be a broader range of opportunities this year than in the past two years.
Part of that story is valuation. The mega cap tech stocks are highly valued and that can serve as a limiter. The rest of the market is not nearly as overvalued and as long as the economy holds together, ‘everybody else’ has the opportunity to have a good year.
Although the mega cap stocks spiked on the Trump election win, we have quickly settled into an environment of more evenly distributed performance, as shown in the chart below. The Red line is the S&P 500 Index ETF, the purple line is the equally weighted S&P 500 index ETF and the blue line is the Magnificent 7 (mega cap tech) ETF.
A few weeks is not a long time, but we are starting the year on a more even footing and we view that as a good thing. It would be healthy to see a photo-finish at the end of 2025.
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Palumbo Wealth Management (PWM) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where PWM and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at www.palumbowm.com.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.
The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
Past performance is no guarantee of future returns.
equal weight S&P 500, Magnificent 7, Market Timing, mega cap technology, Risk Management, risk tolerance, S&P 500, Stock Market, Stocks
By: Adam