Friday Follies – Market Drifts Into the Weekend Slightly Weaker

Watch the Russell.

Both the Russell 2,000 and the NYSE (about 1,900) are broad-market indicators and both of those indexes have been weak, not just this week but for the month of November.  The Dow has just 30 stocks and any one (AAPL) can lift it higher and the S&P 500 has 500 stocks and heavyweight stocks (AAPL) can lift it higher without broad participation and the Nasdaq (100) is dominated by one stock (AAPL) and even the broader Nasdaq Composite (3,300) is very heavily weighted to it's top stocks (AAPL).

Apple is up over 30% since early August and up 50% since the June swoon and 70 AAPL points time 8.5 Dow points per Dollar (yes, the index is that stupid) means AAPL alone added about 600 points (33%) of the Dow's 1,800 point run since early August.  That's a lot of eggs in one basket!

I would argue that AAPL may deserve its valuation but United Health (UNH) is up 55 points since October (467 for the Dow) so there's two stocks responsible for more than half the gains right there.  How much did the rest of the index go up just because the leaders went up and NOT based on their own merits?  

As I mentioned on Wednesday, we are approaching the point of peak valuation on the broad indexes.  My prediction when we cashed out our last batch of portfolios on September 18th was that EVEN IF there were a trade deal with China, the S&P 500 would top out at 3,300 (10% gain) but, if there were no deal – we were just as likely to see 2,400 (20% drop) and, since we were sitting on some very large birds in the hand – it simply wasn't worth chasing others in the bush until we saw how 2019 played out.

That didn't last too long, by October 1st we were already bored and we started making short-term picks and then we decided they were good enough to build a new portfolio around, so we started a new Short-Term Portfolio and then, for balance, we started two more in October.  My intent was to wait out the year but it's kind of boring just watching the markets and
continue reading