Hope you are all doing well. Strong earnings results lifted the three major U.S. stock indexes to gains between 1% and 2%. That largely offset the previous week’s modest declines. Despite the rebound, the S&P 500, the NASDAQ, and the Dow remained below the record levels they set over the past two months. July marked the second slightly negative month in a row for the S&P 500. The NASDAQ sustained a bigger decline. Dropping 3.2% in July. In contrast, the Dow added 0.3% in July. That marked the index’s fourth positive month in a row. I think we are due for a bit of a pullback over the next 2 to 3 months. Though I expect markets to rally at the end of the year and pull off another positive year. The right thing to do is stay invested, and if we get a dip, use that as a buying opportunity or a chance to convert to Roth. Vincent Pastore passed away this week. I have broken down this week’s update using quotes from his character, Sal, on The Sopranos.
Not In The Face, Okay?
Like Sal facing impending death, the bond market faces more pain as inflation ticks higher and rate hikes seem certain to come. Bond funds have been dead money for the past decade. The most commonly held bond ETF has averaged a 1.31% return over the past ten years, and that is with reinvesting your dividends. Without reinvesting dividends, you would have lost money as it was $113.02 per share on July 29, 2016, and is now $97.37 per share. Here is why the bond market will go from bad to worse. Even though the Fed left rates unchanged, three of its voting members dissented, preferring to lift rates. Long-term inflationary pressures continue to mount. These harbingers of future rate hikes have boosted the yield of the 30-year and 10-year U.S. Treasury. By Friday afternoon, the 30-year yield had climbed to 5.25%, about as high as it has been in close to 20 years. The 10-year yield rose to 4.71%, the highest in more than a year and a half. I have preferred fixed annuities and CDs to bonds for income-oriented investments for the past decade. Rising long-term rates make CDs and fixed annuities even more attractive vis-à-vis bonds.
I Got A List Of People As Long As My Arm I Wouldn’t Want Cloned.
For me, that list is the other 493 stocks in the S&P 500. For the past couple of years, every time the Nasdaq drops, television pundits suggest rotating out of the Magnificent Seven stocks into the other 493 stocks. Every time it proves to be the wrong advice. This time is no different, as tech stocks began their rebound this week. Four of the Magnificent 7 companies (Magnificent 7 represented by Apple, Alphabet, Amazon, Meta, Microsoft, NVIDIA and Tesla) reported earnings this week. Microsoft and Amazon shares rallied following stronger cloud-computing revenue. Meta’s stock price moved lower as markets focused on an earnings miss and softer guidance amid elevated capital spending. However, Meta still grew its revenue 27% year over year, which is super impressive for a company its size. Apple shares also declined as cost concerns and the company’s cautious outlook appeared to disappoint investors. Again, investors are missing the boat on what matters. Apple posted record revenue of $109.4 billion (up 16% year-over-year growth), a 27% jump in net profit to $29.8 billion, and strong double-digit growth in iPhone and Mac sales. The run in the Magnificent Seven vs the rest of the index, which began in October of 2022, has been due to the disparity in earnings growth; while the gap is shrinking, it is still significant. In 2023, the Magnificent 7 delivered roughly +31% earnings growth, while the rest of the S&P 500 (the S&P 493) declined by about −4%. In 2024, Magnificent 7 surged near +40% in profit growth compared to a modest +4% for the remaining companies. In 2025, Magnificent 7 growth moderated to around +22%, while the rest of the S&P 500 accelerated to roughly +9% to 10%. This year, consensus forecasts anticipate Magnificent 7 full-year earnings growth around +23% to 26%, compared to +11% to 12% for the rest of the index. Tech remains the sector to be overweight.
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