Stock Market Trends From Q1 2024

Forbes

Rob Isbitts, the founder of sungardeninvestment.com and etfyourself.com, joins “Forbes Talks” to discuss Q1 stock trends and offers advice to new investors.  0:00 Introduction 0:23 Rob Explains Trends For Q1 4:18 Future Of EFTs 7:57 Stock Changes For A lot Of Major Companies: What Does It Mean? 11:58 Interest Rates And Returns: Higher or Lower? 14:21 Update On Dividend Stocks  16:27 Are The Days Of 'Cheap' Gone  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00 Hi everyone, I'm Rosemary Miller here with Rob Isbitts, the founder of SunGardenInvestment.com

00:08 and ETFYourself.com, here to give us an overview of Q1 stock market trends and offer a little

00:16 advice for new investors.

00:18 Thank you so much for joining me today, Rob.

00:20 Hey, great to be with you again, Rosemary.

00:23 So could you provide a recap of Q1 trends in the stock market, please?

00:30 Sure.

00:31 You know, I think that to look at this, and by the way, I mean, we're recording this a

00:37 day after April Fool's, so hopefully people didn't get fooled too much in the first quarter,

00:45 but the second quarter already seems to be starting a little bit different.

00:49 The vibe is a little bit different, and I feel after almost 40 years of being a professional

00:55 investor that I can use words like vibe to describe the markets.

00:59 But now I'll go into some of the detail and the whys and wherefores behind that phrase.

01:06 So in the first quarter, technology stocks didn't lead, and that was the first time really

01:17 that that has happened in a while.

01:19 Energy stocks actually outperformed, so did financials.

01:25 But what's interesting is that when you look at the market, whether it's the S&P 500 or

01:35 the Nasdaq or really 10 out of the 11 sectors that make up the S&P 500, if you just look

01:43 at how, let's say, the whole sector did, energy and financials did well, well, most of those

01:50 sectors are dominated by two or three or four stocks.

01:55 So as a result, it's not energy doing well as much as it is two or three stocks that

02:02 have a very high weighting in that index.

02:05 And again, we look at this through exchange traded funds, ETFs, or through the individual

02:10 stocks themselves.

02:12 And so I think the takeaway for investors, because apart from the stats, that'll be gone

02:18 and we'll be on to something else probably by next week.

02:22 But the takeaway is know what you own and understand that the indexes tend to be very

02:31 top heavy unless they are constructed otherwise.

02:35 And so, again, it wasn't so much energy, financials, communication stocks doing well across the

02:43 board.

02:44 It really was the biggest continuing to do better.

02:49 And the more that's starting to broaden out starting in the second quarter, I would say

02:56 the more even-handed it might be and easier for people who are trying to get ahead by

03:03 finding stocks, businesses, kind of like in the old days, as opposed to trading what's

03:09 moving.

03:10 The other thing about that is that if you look at why technology stocks were kind of

03:19 middle of the pack, which is not where they're used to being, they're used to being in the

03:22 front of the race.

03:25 A lot of it has to do with Apple because Apple was down over 10 percent in the quarter.

03:31 And it really does kind of show how top heavy the market has become.

03:35 And if you look at Symbol's XLK, which is the technology sector of the S&P 500, owns

03:43 all the tech stocks in the S&P, great.

03:47 There's a lot of stocks in there.

03:49 However, Apple and Microsoft combined make up about 46 percent of the tech sector.

03:56 So the other several dozen are kind of along for the ride.

04:02 Together they make up about as much as Apple and Microsoft do.

04:05 And again, any time we look at performance, I try not to just look backward because the

04:11 one thing we've discussed about past performance, the only guarantee is that you can't have

04:16 it because it was in the past.

04:18 So I would rather look forward.

04:21 And so let's do that.

04:24 So looking at some of the things that are becoming deeper trends in the stock market

04:34 in particular, energy is doing pretty well.

04:38 Traditional energy, alternative energy is not.

04:42 Some of the ETFs, and again, I refer to ETFs because they're not just investments that

04:49 I am quite familiar with after 30 years of managing money with them.

04:56 But also the ETFs mostly track indexes.

05:03 And so if you want to see how, let's say, clean energy stocks are doing well, you can

05:10 look at a bunch of individual stocks and it might be a little confusing or you can look

05:14 at an ETF that, and there's several of them, let's say, that track a basket of alternative

05:23 energy companies.

05:25 And a lot of those were down 10, 20 percent or more in the first quarter.

05:30 There was one that I looked at, it's one of the longer tenured ones, been around for a

05:33 long time, and it's down 71 percent since the start of 2022.

05:41 So that doesn't mean they're continuing to go down.

05:45 I think it's just another reminder of how many ways you can lose money and maybe take

05:55 years to make up for it by taking the oversimplified "I'm a long term investor" mantra.

06:03 I'm a long term investor, too, but the long term is a sum of lots of little short term

06:10 periods.

06:12 I mean, personally, I've never been the type of investor to say, well, it's OK if I take

06:17 a hundred dollars, you know, a proverbial hundred dollars and I turn into 50 cents or

06:21 30 cents because, you know, the market always comes back.

06:26 We're living through a, we're almost at a quarter century here now, which is kind of

06:33 amazing.

06:35 But about half of that time, half of the last 25 years was a period in which the S&P 500

06:42 went from here to the same place.

06:46 It was zero return for about 12 or 13 years.

06:49 And so I'm not.

06:52 How does it happen?

06:54 Usually speculative bubbles that go too far.

06:58 I mean, look, I think we're in one now, but it doesn't matter what I think.

07:02 And I know because investing is not about predicting the future.

07:09 It's evaluating reward and risk and figuring out how much reward you want to pursue once

07:16 you've measured the risk.

07:17 And I'll talk about that, I think, before we before we finish.

07:22 There was one theme that I would say kind of moving past the first quarter and if you

07:28 will, lessons learned.

07:29 You know, I, I decided to spare you and the audience this month and not just cite a bunch

07:35 of statistics, which they can probably get anywhere, especially on Forbes.

07:42 So there is a theme building.

07:45 And let's see what we talk another month or two months.

07:50 It's not Revenge of the Nerds, a famous movie from my generation, but Revenge of the Rest.

07:57 And what I mean by that is depending on how you look at it, if you take the S&P 500, some

08:03 people would argue that seven stocks, the Magnificent Seven, as they call them, have

08:11 really accounted for almost all the returns.

08:14 And I want to clarify this for the audience, because I think there's a lot of truth to

08:18 the idea that a small number of stocks have carried the market higher.

08:23 So if you look at, let's say, S&P, NASDAQ, the Dow less so, which is kind of why I like

08:27 the Dow.

08:28 But if you look at S&P 500 and you look over the last couple of years, you will see that

08:39 there have been a small number of extremely large winners.

08:45 And we know the names, Nvidia, Microsoft, Amazon, Alphabet, formerly known as Google,

08:53 Meta, formerly known as Facebook, a lot of name changes going on.

08:58 But that whole group, and they're dropping like flies a little bit.

09:03 Tesla's been off and Apple, as I mentioned before.

09:09 But over the last few years, I think the public impression is partially true.

09:16 If you take that magnificent seven and maybe a few others around it, they've done extremely

09:24 well.

09:25 And you can look at what we call contribution to the portfolio or attribution analysis,

09:30 they call it.

09:31 It's OK if you look in the S&P did X for the year, I'm not going to run a lot of numbers

09:36 and confuse everybody.

09:38 And maybe myself, too.

09:41 If you look at the returns of, let's say, the S&P 500 last couple of years, what you

09:47 will find is that all of the return pretty much came from a relatively small number of

09:53 companies.

09:54 Let's just say to pick a round number, it was 10 companies.

09:56 Well, what does that mean about the other 490?

09:59 It doesn't mean that they went down.

10:01 It just means that out of the other 490 in this example, you had winners and losers,

10:07 but they all kind of broke even in the end.

10:11 And that's why I think a lot of people's portfolios are maybe making them feel artificially

10:20 high in value.

10:21 I mean, it's real money, but I guess my message to the general investment audience is make

10:29 sure that your success in the last year or so is not due to just a small number of winners

10:41 and if it is, make sure you're comfortable with whatever happens to those winners because

10:48 cycles have repeated through history.

10:51 Late '99 into 2000 was a lot like this in many ways.

10:55 There's even a great chart I saw with somebody.

10:57 They said they tracked the price chart of Nvidia, who everybody knows now.

11:04 And Nvidia going up and up and up looks just like a company called Cisco.

11:11 C-S-C-O is a symbol, not the food company Cisco.

11:16 And Cisco back then was one of the super stocks.

11:21 And what happened instead is it got to those heights and then basically it crashed along

11:29 with a lot of other dot-com bubble heroes.

11:34 And it took in some cases 10 to 20 years or more for them to break even.

11:40 I'm not trying to scare people.

11:41 I'm just trying to remind them that risk exists and that kind of leads me into, if you don't

11:50 mind, what I would call revenge of the rest.

11:53 Okay, revenge of the rest.

11:56 What do you mean by that?

11:59 So the stock market is starting to broaden out.

12:03 I'm a diehard chartist.

12:06 Late father taught me when I was 16 years old and I'm a lot older than that now.

12:10 So I've been at this a while and the market always tells us a story.

12:17 We just have to listen to it.

12:20 And I am very much paying attention.

12:23 And what I'm seeing is that this very narrow group of mega cap stock leaders are starting

12:34 to at the very least tire out, maybe roll over.

12:39 We'll see.

12:40 We've had a lot of fake outs this way.

12:44 But as the market starts to broaden out, that means that things like good old American industrial

12:50 companies, a lot of their stock prices are starting to look a little bit better.

12:54 Some things that are related to commodities, because there is a concern about inflation

12:59 reaccelerating.

13:00 I think that concern is real.

13:02 I think we're seeing it in the prices of certain stocks that are related to commodity prices.

13:08 And I think we are definitely starting to see it in the potential for interest rates,

13:14 especially longer term interest rates, to reaccelerate higher.

13:18 And if that happens, that could end up being the one thing the stock market didn't think

13:25 would happen, hope wouldn't happen.

13:28 And then it's happening.

13:30 And again, I'm a historian with this stuff.

13:32 So I do go back to the 1970s when I was a high schooler or a grade schooler.

13:38 But from reading the history, you had inflation come on the scene.

13:45 Everybody was a little bit uncomfortable for a little bit.

13:46 And then it receded and everybody relaxed and then wham, through the roof.

13:51 I still remember the gas lines.

13:53 Anybody my age who's listening, you can only get gas in your car every other day, depending

13:58 on whether your license plate ended with an even number or an odd number.

14:03 They were rationing gas.

14:06 Look it up.

14:07 Wow.

14:08 You mentioned the stock market broadening out.

14:14 How does your YARP approach contribute to identifying more stocks for consideration

14:18 compared to previous years?

14:20 Yeah, I am so glad you asked.

14:23 YARP has yielded a reasonable price.

14:26 It is a trademark factor, if you will, that I apply to dividend stocks.

14:31 I actually invented it one summer several years ago with my then 19-year-old son who

14:37 was interning with me.

14:39 And so he certainly gets some of the credit for that.

14:42 But YARP basically says, look at the history of a stock's dividend yield and look at a

14:49 couple of other factors and look at how it's trending.

14:53 And that will give you, in a lot of cases, an early clue as to whether you can lock in

15:00 a pretty decent dividend yield and get price appreciation.

15:06 So what's happening now and the reason I'm now starting to talk about YARP, write about

15:12 YARP.

15:13 There's a Forbes article about YARP, which the editors asked me to do, which I was thrilled

15:20 because I think it's obviously the only one of its kind as far as I know, because we are

15:27 pursuing a trademark.

15:28 But I think it's a time where dividend investors can now look at the YARP approach and say,

15:37 hey, if I find good businesses, that's great.

15:40 But how do I know that I'm not buying them at very overvalued prices?

15:46 And that's really what it does.

15:48 And it kind of combines dividend stocks, quality stocks, and technical analysis, my charting

15:55 that I've been doing for over four decades.

15:57 When I look at that now, I don't find a whole lot in technology, although I do see what

16:02 I would call sort of the underlings in technology, not the big names, but the ones that maybe

16:08 yield 3 percent or so and haven't kept up with, like I said before, the deceptive, if

16:17 you will, return of some of the biggest companies, even in the good sectors like tech.

16:23 There's the biggest tech and there's, let's call it big, but not quite as big tech.

16:27 And I'm seeing some things there.

16:28 I'm seeing a lot in things like the food and beverage stocks.

16:31 And that's an easy one to figure out why they would be at least cheap.

16:35 It's one thing to be cheap, it's another to be cheap and in a position where it won't

16:40 get cheaper.

16:41 OK, because that's not good.

16:43 You don't want to buy it cheap and sell it cheaper.

16:47 OK, that means you've lost money.

16:49 And if you think about the whole Ozempic thing and that class of drugs, it's done wonders

16:59 for a couple of stocks of the drug makers.

17:02 It has really, really hammered some of the companies that make, shall we say, comfort

17:10 food.

17:11 And I don't mean like you go to a nice restaurant and they serve you an upscale burger.

17:16 I'm talking about chips and soda and things like that.

17:21 Those companies have been hit pretty hard.

17:23 And I'm starting to see early, early signs that maybe that's it.

17:29 I see some things in energy.

17:31 I see some things I'm not the biggest fan of gold, but I see some things brewing in

17:35 the gold miners.

17:36 And if they pay a dividend, I'll look at it.

17:38 And I think the main thing would be industrial companies.

17:41 I mentioned at the beginning of our discussion today that there are 11 sectors of the S&P.

17:48 10 of them are weighted toward a small number of stocks.

17:52 The only one that is a little bit more even handed, where if you buy the sector, you're

17:58 getting a lot of companies that are kind of weighted about the same because they're all

18:03 about the same size.

18:05 And that is the industrial sector.

18:07 Symbol for the ETF is XLI.

18:10 It's part of a group of 11 that they run over at State Street.

18:13 And so whether it's chemical companies or other types of industrial manufacturers, sort

18:20 of good old blue chips, as we call them, a lot of those are in the Dow.

18:24 A lot of them aren't.

18:26 And so those are the places where things are just starting to get on my radar.

18:30 And if this continues, when we speak in another month or two, I think I'll be able to report

18:36 a little bit more on how, let's call it, the new wave of YARP type stocks are doing a little

18:45 bit better.

18:46 Because for years, the dividend stock set was not a great place to hunt for good long-term

18:55 total return investments, but I think it's coming back around.

18:57 Well, thank you so much for joining me today, Rob.

19:02 My pleasure.

19:02 Thank you.

19:03 Thank you.

19:04 Thank you.

19:09 [BLANK_AUDIO]

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