16 Dec 16th December 2024

Weekly Index Movement

S&P500	-0.6%
Nasdaq	+0.7%
Aussie All Ords	-1.6%

This will be the last Catch-Up of the year as we take a break over Christmas and the New Year period and as there isn’t much different to talk about we thought we would highlight a number of small pieces that caught our eye recently.

US inflation came in right on expectations last week. Wednesday’s core CPI reading was 3.8% annualised. That marks the fourth straight month of core CPI running between 3.4% and 3.8% annualised. That’s much hotter than comfortable for the FOMC, but there was some good news under the hood. First, rent growth decelerated sharply, rising at the slowest pace since the drops during the initial stages of the pandemic. The hot print for core CPI in November was entirely because of autos and other volatile categories like car rentals, flights, and hotels. Other key categories slowed sharply, including services inflation. Headline PPI was hotter than expected on Thursday but remains in a modest range a bit above 2% annualised. Using the details of the CPI and PPI releases, Wall Street economists estimate core PCE rose just 1.6% annualised. That would be a sharp slowdown versus the mid-3% annualized readings of the last couple months and opens the door for a Fed rate cut this week.

Here is a nice little graphic I found on Visual Capitalist. It shows the best performing stock son the last 5, 10, 15 and 20 years.

Take a look at those names and what theme screams out at you?

TECHNOLOGY STOCKS

Just about all of them come from the tech sector.

Let’s fast forward 5 years from today. If we look back then, what sector do you think will hold most of the best performing stocks?

Why then isn’t your portfolio heavily weighted that way?

You read me say this week in and week out, and I’ll continue to come up with evidence until everyone does it.

Now, on to those interesting points that caught our eyes this week.

The S&P500 currently has 393 members that were also there 20 years ago. Of those 393 members, 145 of them (37%) have posted 20 year returns in excess of 1,000%. 8 of them are up more than 10,000%. Just goes to show that long term stock ownership is very lucrative. Mind you, it also shows that 120 of them are no longer in the index. That isn’t too far from the same number that are up 1,000%. I still argue it is easier to just buy the index than try to pick which ones will be up 1,000% and which will be out of the index. But I also know that stock picking is a popular past time.

One approach would be to do something like stick 70% of your portfolio in the index and use 30% to stock pick to satisfy the intellectual need to get something right.

NVIDIA (NVDA) and Netflix (NFLX) have been the two best performing S&P 500 stocks over the last 20 years. A $1,000 investment in NFLX 20 years ago would now be worth more than $500,000, while a $1,000 investment in NVDA would be worth more than $900,000.

S&P 10,000? If the S&P 500 were to track its annualized price change of +9.3% over the last 50 years, the index would first cross the 10,000 level roughly six years from now in mid-2030.

No Corrections. Since 1928, the S&P 500 has averaged about one 10%+ correction per year (1 every 346 days), but so far there have been no 10%+ corrections in 2024. 2021 was the last year to not see a 10%+ correction, and half of all years since 2000 haven’t had one. Don’t be surprised if we get one in 2025.

Everyone Bullish. In November, a record 56.4% of US consumers expect the stock market to trade higher over the next year. That isn’t a good sign. Normally people are only this bullish near the top of a market.

I’m worried that Barron’s has already jinxed 2025 for us with this cover story last week

I would not be surprised to see a market wobble in January / February. But it will be nothing to worry about and just another opportunity to buy.

Happy Birthday ChatGPT. November 30th marked the two-year anniversary of the launch of ChatGPT. In the two years after ChatGPT’s launch, the Nasdaq rallied 75.6%, which ranks in the 94th percentile relative to all other two-year periods for the index since 1971.

Digital Gold. Just hours after Fed Chair Powell referred to Bitcoin as “just like gold” on 12/4, the world’s largest cryptocurrency topped $100,000 for the first time.

Election Year Gains. Along with this year, the S&P 500 has been up 20%+ YTD entering December of Presidential Election years four other times (1928, 1936, 1980, 1996), and in three of those four years (1936, 1980, 1996), the index finished down in December for an average drop of 2%.

Back End Loaded. Over the last 50 years, the bulk of December’s gains have come in the second half of the month; from 12/15 through year end, the S&P 500’s median performance has been a rally of 1.06% with gains 39 times.

Market Up, Stocks Down. Even though the S&P 500 was up 0.86% through the first eight trading days of December, there were more declining stocks than advancing stocks in the index (negative breadth) on each of the month’s first eight days.

This fact is telling us the index advance is being made by the largest market caps. Basically big tech. If we took them out, the index would have fallen in December. This is a sign that we might soon experience a dip soon.

Data Centre Boom. Spending on the construction of data centres hit a $30bn annualised rate in October, up from an average of $10bn as recently as 2021. US technology companies’ net property, plant, & equipment assets rose 14.2% YoY, or $120bn, through Q3, reflecting their data centre investments.

Gen “High Expectations”. Gen Z adults (age 18 to 27) say it takes an average annual salary of $587,797 and a net worth of $9.5 million to be considered “financially successful” compared to an average annual salary of just $99,874 and a net worth of $1 million for baby boomers (age 60 to 78). Boy are the Gen Zers going to be disappointed.

Warning

Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.