by Peter R. Wechsler
Investment Advisor Representative
[email protected]
On the surface, the stock market looks pretty good. As of Tuesday, the S&P 500 is up 14% year-to-date, but the hypothetical median stock in the S&P is up only 4%. Technology, AI, and semiconductor stocks have driven much of the S&P this year. Right now, 40% (200) stocks in the S&P are negative for the year with 25% in correction territory, meaning they have lost more than 10%.
This is called a “narrow market rally”, and the analysts say that market breadth is relatively weak. Many big-name, popular stocks aren’t doing very well this year, including Costco, GE Aerospace, Bank of America, Oracle, Alcoa Aluminum, and Comcast… just to name a few.
Behind the scenes, higher interest rates are starting to erode the value of most high-flying tech stocks, according to a column in the Wall Street Journal last week. Since so many tech companies are financing their AI investments, the higher interest rates are making it more expensive to borrow and will lower their profits. Wall Street doesn’t like that.
There is also lots of opposition to data centers for many reasons. With a large share of those projects now on hold, many of the companies that are designing and building these planned data centers are feeling the financial pinch. We’ve watched the stock price on many companies involved really sink over the past three months. Some prognosticators are saying that all the noise around data centers will quiet down after the elections. Who knows?
Markets are also fearing an Iran war escalation after the elections if a deal isn’t reached. Threats are being made and other countries in the Middle East are being drawn into the conflict. What’s interesting is that after nine months of war and all the talk about us running low on weapons, many defense stocks are still in the toilet. Year-to-date General Dynamics is flat, Northrup Grumman is down 14%, Honeywell is up 1%, Lockheed Martin is up 5%, L3Harris (LHX) is down 19%, and Boeing is off 15%.
What else is hurting the markets right now? Energy prices, tariffs, and inflation are right there with the higher interest rates. So, expect a bumpy ride. However, with a little luck, things will quiet down after the elections. More often than not we see a market rally after the mid-term elections. Fingers crossed! For now, just keep that seat belt fastened and hope for the best.
Enjoy the weekend (and go Birds?)…
Peter