The S&P in 2023 and The 'Magnificent Seven'

Today, Bruce and Alex Koury talk about the S&P 500's present situation and potential future growth, emphasizing the role that specific stocks and more general investment strategies play in these turbulent times.

Alex begins by outlining the S&P 500's incredible 2023 performance, powered mainly by seven stocks—dubbed the 'Magnificent 7.'   These are IT behemoths like Apple, Amazon, Meta, Google, Microsoft, NVIDIA, and Tesla, who together accounted for 80% of the index's returns. At the same time, the 493 stocks that were left were essentially unchanged. This concentration calls into question the durability of such growth and the possible consequences of excessive reliance on a small number of well-performing firms.

Bruce highlights how AI is driving these tech firms, and he recommends that investors should be cautious about the anticipated downturn in the market, even though they might still perform well in 2024. Bruce draws attention to the risk of recency bias, which occurs when investors assume that the future will look like the recent past and may fail to see other investing opportunities.

What about financial tactics in light of inflation and varying interest rates?  Bruce draws attention to the recent decline in the 10-year Treasury yield and speculate that there may be opportunities to purchase fixed-income securities, especially bond mutual funds trading below par.  He also discuss how the Federal Reserve's interest rate policy may impact money market funds and CDs.  Bruce also counsel listeners to incorporate diversification and long-term planning into their investment plans.

Alex cautions listeners not to fall victim to recency bias and the hype surrounding AI and tech stocks. Even though these stocks have done well, it is still worthwhile to investigate other industries and prospects. In addition, he stresses the value of having liquidity and getting ready for possible market turmoil in 2024.

As the episode ends, Alex and Bruce stress the value of diversification—not just in terms of asset classes but also in taking into account industries other than the tech stocks that have been performing exceptionally well. They also discuss the possibilities of annuities and fixed-income investments in the current economic environment. They remind listeners that, particularly in the face of persistent inflation, a balanced approach to investing is necessary, one that considers both short-term income requirements and long-term gainn.

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