June Charts of Interest: Are Happy Days Here Again?

The S&P 500 index entered a new bull market on June 8, 2023. So not surprisingly, I’m going to start this month’s charts of interest by addressing the question of what happens next. Historically, good things tend to happen.

Here’s what Carson Group chief market strategist Ryan Detrick tweeted in early June: “S&P 500 just points away from a ‘new bull market’ and up 20% from the Oct lows. What happens next? 13 times stocks 20% off lows and a yr later higher 12 times and up 17.7% on avg. 6 mos later up 10% on avg.”

A Bull Without Much Breadth

One thing we at AAII, as well as others, have noticed is the lack of widespread participation in the bull market. Rather, the S&P 500’s emergence into a bull market has been fueled by a small group of stocks. This lack of breadth can be observed in other market indexes as well.

“At the end of May, the footprint of the biggest ten companies in the Wilshire 5000 Index stood at nearly 26%, considerably higher than the 15.8% weight the ten largest stocks had a decade ago, and surpassing even the lopsidedness of the market at the height of the Dot Com bubble in 2000,” noted Rayliant’s Phillip Wool last week. He then added, “Over the last decade, a little more than one-eighth of the market’s performance was contributed by the largest firms. During the late-90s tech bubble, over one-third of returns came from these megacap stocks. In the recent bull run, by contrast, almost the entire market return was accounted for by just ten companies’ performance.”

Source: Rayliant Global Advisors.

One More and Then Done?

Last week’s decision to pause interest rate increases is being viewed as the beginning of the end to the current interest rate hike cycle. The federal funds futures market is expecting the Federal Open Market Committee (FOMC) to raise interest rates by a quarter point (0.25%) at its July 2023 meeting. Afterward, no more hikes are expected to occur.

Here are the expectations that the CME FedWatch Tool is showing being priced in for the September FOMC meeting as of Thursday morning. The odds of where traders expect interest rates to be at the end of the year are not significantly different. As always, these odds are subject to change.

Add TIPS to the List of Things Investors Stink at Timing

There has long been evidence about investors making poor decisions when it comes to timing the stock market. New data from Morningstar shows that investors also tend to make ill-timed buy and sell decisions when it comes to Treasury inflation-protected securities (TIPS).

Morningstar analyzed asset and flow data for TIPS funds over a 10-year period ending on April 30, 2023. In summarizing the findings, Morningstar Research chief ratings officer Jeffrey Ptak, CFA, wrote, “We found the average dollar invested in TIPS funds lagged the total return of the average TIPS fund by at least 2% per year.” Ouch!

Source: Morningstar.

Not Always Forever

While Warren Buffett is known for having said, “Our favorite holding period is forever,” his company’s portfolio of marketable securities does experience regular turnover. Here’s a chart from Reuters showing the holding periods for several current and former securities held by Berkshire Hathaway Inc. (For disclosure purposes, I am a Berkshire Hathaway shareholder.)

So, You Do Like Stocks After All?

Last month, I included a chart from a Gallup poll showing that the percentage of people who thought stocks were the best long-term investment was “on the low end of the 17% to 27% range of Americans choosing it since 2011.”

Well, at the end of May, Gallup published a new survey showing 61% of Americans owning stocks. This was “the highest percentage Gallup has measured since 2008.”

Gallup did not provide an explanation reconciling the two results. It did elaborate on the findings of the more recent survey by saying, “Stock ownership rates are now back to where they were in 2008, likely because stocks have again proven to be a solid long-term investment and income gains among Americans have given them greater means to invest in stocks.”

Make Sure You Didn’t Leave a Retirement Account at a Former Employer

Rollover firm Capitalize says nearly 3.8 million 401(k) accounts were left behind in 2021 and another 4.4 million were left behind in 2022 by people who changed jobs or otherwise left their employer. “These numbers suggest that one in five job-changers with a 401(k) left that account behind when changing jobs during 2021 and 2022.”

Source: Capitalize.

A provision in the SECURE 2.0 Act mandates the U.S. Department of Labor (DOL) to create a searchable online database for retirement accounts with low funds. In the meantime, if you think you might have a retirement account that was abandoned, you can try checking Missing Money. You can also try contacting your former employer and/or the mutual fund company that provided the offerings for your plan.