A Goldilocks Economy For Investors -- August 28, 2023

Locator: 45493INV.

NVDA: gains $8/share by the close. AAPL gains $1.60.

AMZN: raises free shipping minimum, link here. So incredibly right on so many levels. Amazon needs to remain focused on their "prime" customers.

 Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here. 

All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them.  

Again, all my posts are done quickly. There will be typographical and content errors in all my posts. If any of my posts are important to you, go to the source.

VIX below 16:

Truly a market for:

• traders
• stock pickers
• long-term investors

The Goldilocks economy continues.

Ken Fisher's top 15 picks: link here.

• six through fifteen here; and,
• the top five here.

Meanwhile, someone has come up with a list of "Buffett's can't lose" stocks. Link here.

Whispering:  

• no more rate hikes this year, if no major changes in economic data; and,  
• 50-50 bet on at least one rate cut in late 2024. 

Ken Fisher's list:

Ken Fisher	August, 2023	Billions
15	Visa	$2.00
14	AMEX	$2.00
13	Freeport-McMoRan	$2.20
12	Oracle	$2.21
11	Adobe	$2.40
10	Home Depot	$2.70
9	Salesforce (CRM)	$2.90
8	TSM	$2.99
7	AMD	$3.00
6	ASML	$3.50
5	NVDA	$3.60
4	GOOG	$5.11
3	AMZN	$5.30
2	MSFT	$8.32
1	AAPL	$10.24

Look at an analyst's take on AAPL (on the second page at this link).

Take Apple, Inc. for example. It is the largest stock by market cap, and fairly considered one of the best companies in the world. The company has been extraordinarily successful and improved standards of living everywhere in the process with their ubiquitous products. Along the way, shareholders have been richly rewarded, with shares increasing nearly fourteen-fold over the last ten years while generating an annualized total shareholder return of 31%, including dividends. 

On the back of another big quarter for large cap tech, it is now the first stock to surpass the $3T market cap threshold. This makes its weighting in the ~$37T market cap of the S&P 500, ~8%. It also means this one stock’s market cap is larger than that of the entire ~$2.98T market cap of the Russell 2000 index, the first time in history a single stock has outweighed the Russell 2000 – aside from two brief days in September 2020 when Apple’s market cap then accomplished the same.

Let’s have some fun with numbers for a second to put some context around how remarkable this feat is. To frame the implications of such continued success, let’s assume for a minute that Apple is able to duplicate this outstanding accomplishment and produce another decade of performance like the prior one. (Overlook for now how truly impressive this would be from a starting NTM PE multiple of 29x, a $3T market cap and topline revenues that are nearly $400B already).

At this rate of appreciation, the company’s market cap would be greater than the S&P 500’s current market cap. Even if the S&P 500 appreciated at 11% over the next ten years, it would still comprise nearly 40% of the market cap of the index, flying well past the prior record of ~8% it currently holds.

So, despite the company’s attractive attributes of which there are many, an encounter with the law of large numbers seems to be on the horizon.

Moving on from Apple, other megacap tech companies have received similar treatment. The press often refers to these top five companies with some updated version of FANG like FANMA, or the Magnificent 7 or the Megacap 8.

They include Apple, Microsoft, Google, Amazon, Meta and then Tesla, Nvidia and Netflix round out the group.

For the sake of easier comparisons to prior periods, we’ll focus this discussion on the top five holdings. Like Apple, they are wonderful companies, and their valuations convey the investing public recognizes them as such. Today, these five companies’ aggregate weighting in the S&P 500 is ~25%. They currently trade at ~30x NTM PE.

This level of concentration across the top five has only been seen a couple times in market history.

Though it is said history doesn’t repeat itself, it is also said it rhymes. So how might things rhyme this time? As an interesting thought experiment, let’s assume for a minute these companies traded down to the market multiple of 19x, not even the 17x where the S&P 493 trades (i.e. the S&P 500 minus these seven holdings). Should investors sell these stocks down to these multiples, the delta in those trading multiples alone would produce ~$3.7T worth of funds.