Weekly Market Pulse: Don’t Be A Newton

Market Overview - The current market is perceived as overvalued, with the S&P 500 trading at approximately 2.5 standard deviations above its 50-month moving average, indicating a potential for correction [1][5] - The S&P 500 is heavily concentrated, with 40% of the index in the top 10 stocks and over 35% in the technology sector, raising concerns about future returns [5][10] Historical Context - The comparison to the dot-com bubble of 1999/2000 is significant, as the S&P 500 fell at an annual rate of 14.5% from 2000 to 2002, while the NASDAQ experienced a decline of over 32.6% [4][6] - During the 2000-2002 bear market, alternative assets such as gold, commodities, and certain sectors like healthcare and energy provided positive returns, contrasting with the overall market decline [6][7] Current Investment Landscape - Currently, large-cap value stocks are trading at nearly 17 times 2026 earnings, which is cheaper than the overall index but still not historically low [8] - US high-quality small-cap value stocks are more reasonably priced at about 13 times forward earnings, with mid-cap stocks slightly higher at 14 times [9] - International developed stocks are trading at 15 times forward earnings, with international value stocks at just 11 times, indicating potential investment opportunities outside the US [10] Sector Performance - Recent performance shows that sectors such as healthcare, consumer staples, energy, and real estate have outperformed the S&P 500 and NASDAQ during the recent market correction [11] - Specific ETFs in healthcare and consumer staples have shown positive total returns, while technology and consumer discretionary sectors have underperformed [12][14] Future Considerations - The potential success of AI technology is a key factor for companies that have heavily invested in AI infrastructure, with the risk that current stock prices may already reflect anticipated gains [19] - The market may be experiencing a shift as the initial hype around AI begins to fade, with notable declines in stocks like Meta and Microsoft since their peaks [18][19]