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We have Nvidia (NVDA) to thank for the S&P 500 (SPY) finally breaking above 5,000. This is truly one of the most impressive financial results announcements in recent years. However, valuations for NVDA and other mega-cap tech sectors have become so high that one wonders whether a bubble is forming. Learn what investment expert Steve Reitmeister thinks about the current state of the market, and get a preview of the top 12 stocks to buy now. Read below for more information.
Artificial intelligence is all the rage. And no one is doing better than Nvidia (NVDA). This was on full display in Wednesday’s stunning move after a significant rise in market returns, especially tech stocks related to AI, which ignited Thursday’s decline in stock prices.
This led to the S&P 500’s impressive breakthrough above 5,000 (spy) 5,087 to end the session. But investors should be concerned that not all stocks are participating in this rally. Just like the Russell 2000 small cap stocks are in the red again this year???
More on that in today’s market commentary.
Market commentary
February saw the S&P 500 continue to test the 5,000 level.
There were two occasions when the stock price briefly closed above $5,000, but then fell again. But there is a sense of this 3.rd Time is attractive and there may be more breaks along the way.
But just like in 2023, the rally in mega-cap tech stocks looks too isolated, as you can see from my year-to-date chart focused on market cap growth.
History shows that healthy bull markets are led by small-cap stocks. That’s because these smaller companies typically have superior growth prospects, driving their stock prices by far.
This is why small-cap stocks, going back 100 years, typically have returns 20% better than large-cap stocks. To be clear, this means that if the average return for large stocks is 10%, the return for small stocks is about 20% better at 12% (not 30%).
One theory says, “trends are your friendsTherefore, investors are best left playing the large-cap tech game until the party is over.
Back in the late 1990s, this was a great idea as long as you sold in early 2000, when the first signs of the bubble bursting. Unfortunately, investors rarely make such a wise move. Instead, we tell ourselves seemingly sound logic, such as selling when the stock price returns to previous levels. This flawed thinking will have disastrous consequences at the end of the bubble, as stock prices can easily drop 50-80% in a short period of time.
To be clear, I’m not saying that mega-cap stocks and AI stocks are as popular as Internet stocks were in 1999. Companies like Nvidia are profitable companies that are growing at an incredible pace. However, history has shown that their near 40x earnings premiums have a very low chance of future success.
That means these stocks are priced for perfection. Perhaps they will remain high as long as each subsequent earnings report reveals their perfection. But once the first blemish appears in the earnings outlook,Please note the following! ”
Note that when I was at Zacks Investment Research, we conducted a series of studies that looked at companies’ P/E ratios and expected growth rates. Most people would think that the higher the expected growth rate, the higher the return. However, the opposite was true: the companies with the highest growth had the lowest future profits.
That’s precisely because of the higher P/E and price-to-perfection issues mentioned above. Growth is not sustained over time. At some point, the growth party will end, depending on industry conditions and the intensity of competition. And when that happens, the stock collapses and the P/E ratio shrinks.
My guess is that as long as this AI party continues, most people will have an allocation of profits to these Magnificent 7 stocks. That ownership may be held directly in the individual companies or through ownership of the SPY or QQQ that these shares control.
The question is what to do with the rest of the money. It is unwise to put too many eggs in an increasingly fragile basket.
For me, it’s about getting the most out of your investment. It focuses on a stock’s proven outperformance as revealed by the POWR Ratings system.
By analyzing every stock on 118 factors that indicate future outperformance, we find that the coveted A-rated stocks have generated an average annual return of +28.56% since 1999. And that outperformance is evident again this year.
What are the top POWR Ratings stocks I’m recommending today?
Read below for the answer…
What’s next?
Check out my current portfolio of 12 stocks packed with great benefits from the unique POWR Ratings model. (Nearly 4x better than the S&P 500 through 1999)
This includes five under-the-radar small-cap stocks that have been recently added with tremendous upside potential.
Additionally, I have one particular ETF that is incredibly well-positioned to outperform the market in the coming weeks and months.
This is all based on my 43 years of investing experience, having seen bull markets, bear markets, and everything in between.
If you want to learn more and see our handpicked 13 lucky deals, click the link below to get started today.
Steve Reitmeister’s trading plans and recommendations >
I wish you success in your investments.
Steve Reitmeister…but everyone calls me Leity (pronounced “righty”)
StockNews.com CEO, and Editor, Reitmeister Total Return
SPY stock was trading at $507.66 per share Friday morning, up $0.16 (+0.03%). Year-to-date, SPY has increased 6.81%, compared to the benchmark S&P 500 index’s increase of % during the same period.
About the author: Steve Reitmeister
Steve is better known to StockNews readers as “Reity.” He is not only the CEO of the company, but also talks about his 40 years of investment experience in the world. Reitmeister Total Return Portfolio. Learn more about Reity’s career and find links to his latest articles and stock picks.
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