Messages From the Market

Before we get into today’s thoughts, here is a quick follow up to yesterday that I should have mentioned at the time. Tesla is a member of the S&P 500. Anyone who has an account (personal, retirement, pension, etc…) that owns an S&P 500 index fund or an ETF that represents the S&P 500 now owns bitcoin. Like it or not, the majority of the people in this country that own stocks in one way shape or form may have just added bitcoin exposure. Make of that what you like.

On to today. While everyone loves to talk about “the market” I actually hate it. What? I write about all day everyday. Yes, but most people think of the market as a big index: the Dow, the S&P 500, the Nasdaq. That is what I hate. It is not hard to just own the “the market” through one or all of these indexes and go about your day. But, if you own the averages, you will only ever get average returns. It reminds of when I was in school and I got a C in a class. My father was not happy. My response, as a teenage know it all, was something along the lines of “what’s the big deal, I got a C, that’s average.” He turned a few different shades of red before calmly and rationally walking me through the stupidity of my comment.

Over the past six months, the S&P 500 is up ~16%. That sounds like a good return, and it is. If you are someone who does not have the time to devote to investing, getting 16% in half a year is great. But for the people who do this day in and day out…16% is a C. In fairness, I have oversimplified this. We have to consider risk, goals, time frame, diversification and many other aspects. We are all different. But since everyone likes to talk about “the Market” and they usually mean the S&P 500, let’s stick with this line of thought.

“The Market” is broken into sectors. We intuitively know that Apple and Tesla are not in the same line of business. Here are the different sectors sorted by six month returns. While the index has returned 16%, there are groups that have done better and groups that have done worse.

My goal, day in and day out is to find the groups that are likely to keep doing better.

There is a message to the order of this list. What does it mean if Financials are the strongest followed by Consumer Discretionary? Those are groups that are tied to an improving economy. Financials are clearly tied to the economy. Discretionary is just that…discretionary. They sell what we want, not necessarily what we need.

At the same time, look at the two groups on the bottom. Utilities and Staples. These are groups that generally do well when people are worried about the economy. Staples are the items that we are going to keep buying, no matter what…soap, food, toothpaste, etc.

So, if the the companies that make the things we want are doing better than the companies that make the things we need, that probably means that investors are feeling good about the future.