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New Stock Market Highs and Your Portfolio

New Stock Market Highs and Your Portfolio

February 13, 2024

The stock market rally rolled on last week with the S&P 500 surpassing 5000 for the first time. Corporate earnings continued to come in better than expected and an inflation report came in slightly lower than forecasted, both big positives.

We’ve been hearing a lot about record stock market highs lately but what does that really mean, in general and for your diversified portfolio specifically? The good news is that many stock market sectors are rising, however many sectors are still well below their highs of two to three years ago. When you hear about new highs in the Dow Jones Industrial Average it’s only considering the price action of 30 stocks in the US. The S&P 500 is a broader index of 500 stocks, but this is still only a small cross section of the US stock market, which is made up of approximately 8,000 stocks. Zoom out even further and we see that the US only makes up 60% of the aggregate of the world’s stock market.

It’s optimal to include all ten sectors of the economy in a properly diversified portfolio, with both US and international stocks. A more robust portfolio is also created by including different types of investments such as large and small cap stocks, or value and growth stocks. An investor never knows when one type of investment will outperform the other and this divergence can occur at different times in the economic cycle.

Currently, US large cap growth stocks, especially in tech, have been leading the market higher which is why the S&P 500 made new highs and the Nasdaq is very close to reaching all-time highs. On the other hand, notable laggards have included small cap value, real estate investment trusts, international, and emerging markets. All these areas of the market are still well below their highs from two years ago but shouldn’t be excluded from a well-diversified portfolio.

A laggard sector or stock in 2023 can quickly change to be an outperformer in 2024, and the reverse is also true. Each year I conduct in-depth research to forecast and anticipate what areas may outperform and rebalance portfolios to overweight those holdings and underweight the laggards. The goal this year is to see the new highs broaden out to more areas of the entire stock market.

Photograph by Samuel Regan on Unsplash

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