The Nasdaq added nearly two and a half percent to its impressive gains for the year on Thursday. Helping greatly was Nvidia (NVDA) , which shot nearly 25% higher on the trading day on the back of blowout Q1 results and boosted guidance.
The tech heavy index is closing in on a 30% return for 2023, after losing a third of its value in the prior year. The S&P 500 had a more subdued rise of just under 1% on the day leaving this index near a 10% gain for the year, if one includes dividends.
If there ever was proof of the adage about equities climbing a 'wall of worry', it is hard to find many better examples of this theorem than here in 2023. Economic growth prospects continue to deteriorate, the Fed has continued to ratchet up rates, inflation is still far above the central bank's 'target rate', our proxy war with Russia continues to play out in Ukraine, as well as myriad other concerns. The latest being the debt ceiling talks, a consistent focus for investors over the past couple of weeks.
Yet, the Nasdaq and S&P 500 continue to have more than solid years. However, if one peaks beneath the surface, the rally in the major indexes is not nearly as impressive. There was a good piece on CNBC the other day with economist David Rosenberg. He noted that breadth in the S&P 500 is the worst it has been since 1999, just before the Internet Bust. Further, 90% of the index's gain so far in 2023 have come from just seven mega cap stocks.
He goes on to postulate that the boom in AI stocks looks suspiciously like the internet boom of the late 90s when names like Cisco Systems (CSCO) sold for a hundred times earnings. It is hard to not conclude the comparison has some validity. The tech weighting in the S&P 500 has hit 27%, about the same levels as it was before the air went out of the internet bubble at the beginning of this century.
NVDA is now up 133% for the year, and is rapidly closing in on a trillion-dollar market cap. AI related concerns Microsoft (MSFT) and Alphabet (GOOGL) , have risen 36% and 38% for 2023, respectfully. In contrast, my portfolio, that is heavy on short term Treasuries yielding north of 5% and a collective of covered call holdings, is getting close to a 6% return for the year.
Do I feel bad missing out on the huge rally in the mega caps outside some gains in Meta Platforms (META) earlier this year? The answer is not at all as I have always found changing my investment style to suit the current momentum in the market never ends well for me or my portfolio. I am just not going to pay nearly 30 times earnings for Apple (AAPL) which should see slightly lower earnings and sales in FY2023 than in FY2022. Call me stubborn if you will.
Over the years, I have also historically been early in calling market turns. I got completely out of the market in November of 1999, some four months before its peak. I also started moving more and more of my portfolio to cash in early and mid-2007, more than a year before Lehman. Therefore, equities could easily have more gains ahead before the market fizzles and turns over.
In the meantime, I am more than content keeping my portfolio safe and acting upon the occasionally opportunities I still find from time to time in an overvalued market.
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