Executive Summary
Today’s missive compares the historical price movements in Cisco Systems to the price movements in Nvidia today. While there are some differences, the outcome is likely to be the same.
I encourage you to read The Details below for more information.
“Whenever you find yourself on the side of the majority, it is time to reform (or pause and reflect.)”
–Mark Twain
The Details
The S&P 500 Index is being led by a handful of companies. The leader among them is Nvidia. Appollo Academy recently reported on this concentration in an article entitled, “The S&P 500 Looking More Vulnerable,” found here. The following is an excerpt.
“The top 10 companies in the S&P 500 make up 35% of the market cap but only 23% of earnings. This divergence has never been bigger, suggesting that the market is record bullish on future earnings for the top 10 companies in the index.”
As shown in the graph above, the valuation methodology most correlated with subsequent returns, projects the forward 12-year average annual nominal return of the S&P 500 to be -6% per year at current valuation levels.
For now, the movie continues, but we could soon find out it is a repeat.
The S&P 500 Index closed at 5,505, down 2.0% for the week. The yield on the 10-year Treasury Note rose to 4.24 %. Oil prices decreased to $80 per barrel, and the national average price of gasoline according to AAA fell to $3.50 per gallon.
© 2023. This material was prepared by Bob Cremerius, CPA/PFS, of Prudent Financial, and does not necessarily represent the views of other presenting parties, nor their affiliates. This information should not be construed as investment, tax or legal advice. Past performance is not indicative of future performance. An index is unmanaged and one cannot invest directly in an index. Actual results, performance or achievements may differ materially from those expressed or implied. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy.
Securities offered through First Heartland Capital, Inc., Member FINRA & SIPC. | Advisory Services offered through First Heartland Consultants, Inc. Prudent Financial is not affiliated with First Heartland Capital, Inc.