Monday July 29th, 2024

This week's insights from Simplicity Wealth's

Thomas Rozman, CFA, CAIA | Partner & Chief Investment Officer

Matthew Opsal | Senior Manager Research Analyst

Week In Review

The superior relative equity performance this year of semiconductor and enterprise software companies associated with artificial intelligence has propelled valuation levels to dizzying heights and ever-increasing expectations. This is not new. The euphoria of a prospective new age of innovation and advancement can encourage herd behavior and push prices temporarily above their intrinsic value. These efficient market anomalies create the potential for mean reversion and investors may be witnessing that phenomenon today. Recent earnings disappointments fostered a resumption of the rotation out of information technology stocks. The result – constructive momentum in other economic sectors and greater market breadth, especially in domestic small and mid-cap stocks. The latest consumer inflation report met expectations and strengthened the likelihood of a rate cut, but to no avail for the S&P 500, slipping -0.8%.

This Week

The financial markets have a rich economic calendar to scrutinize. Undoubtedly, the Federal Reserve policy meeting, interest rate decision and press conference will command the most attention. Expectations are for no change in the benchmark interest rate, but the recent PCE inflation measurement may provide enough evidence of sustainable progress for Fed Chair Powell to make much bolder revisions to previous statements.

Portfolio Themes

The United States has the largest economy in the world, with a GDP of $28.6 trillion dollars.3 The Wilshire 5000 Index is a proxy for the total domestic stock market capitalization. At $53.7 trillion dollars, it is at the highest percentage weight within the MSCI All Country World Index since 1987 and almost double the size of GDP.4 The ratio of market cap to GDP is one of Warren Buffett’s treasured valuation measures and suggests that domestic stocks may be overvalued. Simplicity offers diversified model portfolios with international equity exposure that may reduce overall risk.

_________________________________________

Data: Unless otherwise noted, data for charts, graphs, and tables is sourced from Morningstar Direct. Portfolio Themes chart sourced from J.P. Morgan Asset Management.

1 Style box returns use various Russell indices tied to specific areas of the market cap (vertical) and style (horizontal) spectrums.

2 Index Statistics: P/E TTM – Calculated by dividing an investment’s price by the trailing 12-month earnings per share value. Yield – Expected dividend-per-share divided by current share price. Table statistics are updated monthly. MSCI indices represent broad global and international equity markets. Indices are typically not available for direct investment, are unmanaged, and do not incur fees or expenses. Past performance does not guarantee future results.

3 https://fred.stlouisfed.org

4 www.marketwatch.com. Weekly commentary and investment advisory services are provided by Simplicity Wealth, LLC a SEC Registered Investment Adviser. Registration does not imply a certain level of skill or training. The information provided is for informational purposes only and does not constitute any form of advice or recommendation. The information contained within has been obtained from various sources and is believed to be accurate at the time of publication.