PORTFOLIO STRATEGY

How Much Further Can This Record Stock Market Rally Go? The Better Question Is: How Fast?

Another day, another record high. This year, the S&P 500 has beat everybody’s expectations — continuously breaking new highs while even briefly surpassing 5,500 yesterday for the first time ever. At this pace, America’s biggest index could break its 2021 record of 70 all-time highs by year’s end. But whenever record highs enter the conversation, talks of bubbles aren’t far behind.

Record rally: The Magnificent Seven might have kickstarted the S&P 500’s banner run, but pulling the index out of a year-long rut was a team effort — even if hot commodities like AI and weight loss drugs did some heavy lifting. The index has gained 15.4% so far this year — and investment banks like Citi, Goldman, and Evercore predict further gains due to quality earnings, higher profits, and the success of smaller companies.

• On Tuesday, 10% of S&P 500 members hit a new 52-week high — while 66% are above their 200-day average, a marker of companies in an upward trend.

• FactSet’s bottom-up target price for the S&P 500 is 5,924, suggesting analysts expect a ~9% rise in the next year based on earnings.

Bubble, Bubble, Pop?

Despite more companies joining the rally, the S&P 500 is more concentrated than ever. The index’s top three stocks — Nvidia ($NVDA), Microsoft ($MSFT), and Apple ($AAPL) — now represent a record 21% of the index. Nearly half of the index’s gains come from just four stocks, rousing concerns about a market bubble. However, according to Nir Kaissar, the founder of Unison Advisors, today’s S&P 500 is cheaper and of higher quality.

• The S&P 500 trades at 22x forward earnings, slightly above historical levels but well below the Dot-com bubble’s 30x in 1999.

• Since the early ‘90s, profit margins for these companies have tripled from 4% to 12%, with fewer “expensive stocks” in the index.

But there’s a catch… The S&P 500 might be the best it has ever been, but major money managers stress that the returns of the past decade are unsustainable — and might be hard to replicate going forward. BlackRock and Vanguard forecast US stocks to return just 5.4% and 3-5% annually over the next 10 years, respectively — less than a third of the annual returns seen since 2010 (BBG). Therefore, the real concern might not be a bubble or correction… but a slowdown.

PARTNERED WITH STANSBERRY RESEARCH

Someone Is About to Lose a Lot of Money. Will It Be You?

Who’s right — Main Street or Wall Street? Michael Burry — the man who correctly predicted 2008’s epic housing collapse  — bet more than $1.6 billion on a Wall Street crash.

Yet despite that… Almost 75% of American retail investors still plan to take either the same or more risk with their investments in the coming months…

In short, somebody is about to lose a lot of money. But who? According to stock market legend, Marc Chaikin, there’s a straightforward way you can gauge whether your favorite stocks are bullish or bearish.

Click here to see it, at no cost.

LARGECAP RECAP

🖥️ Wall Street’s AI Optimism Masks Reality — Most Companies Still Don’t Use It

“Trust us, bro, AI is the future.” Well, skeptical analysts aren’t trusting you, “bro,” and now they’re increasingly questioning whether the technology will yield returns to justify the massive investments. Bloomberg’s Parmy Olson reports that businesses aren’t embracing AI — calling into question the tools’ usefulness, long-term viability, and the US market’s record rally.

• Only 5% of US companies use AI — the number of business leaders planning to boost AI investments over the next 12 months has fallen from 93% to 63% since the start of the year.

• Sequoia’s analysis found that tech firms made just $3B in revenue from AI products last year, while the industry spent over $50B on Nvidia ($NVDA) chips in the same period.

Just like magic: Olson highlights that AI proponents have been vague about the technology’s potential use cases, which has stirred questions about AI’s usefulness and readiness for mainstream use. Promising investors an “AI God” will only work for so long… especially when they expect higher efficiency, buybacks, and dividends.

NVIDIA’s latest collab could revolutionize fast food: The chip-making giant handpicked Miso to integrate its AI-vision tech into their Flippy robots. Miso’s automated kitchen robots can help the industry boost its profits by $24B a year and now they have 170 fast food brands and 100K+ US locations waiting for the rollout of the next-gen Flippy. Learn more about the Miso investment opportunity →*

Markets & Economy

Car dealers halted by cyberattack: A cyberattack on software company CDK Global on Juneteenth prevented auto dealers from accessing customer records, scheduling appointments, and originating new business. [Read]

Dell ($DELL), Super Micro ($SMCI) jump after xAI announcement: Elon Musk confirmed the two semiconductor companies are providing services to his new AI venture, saying that “Dell is assembling half of the racks that are going into the supercomputer,” with Super Micro also involved. [Read]

US Congress passes nuclear power bill: The bipartisan ADVANCE Act heads to the President’s desk after passing in the Senate and House. It could mark the start of a new generation of nuclear power plants. [Read]

Business & Wealth

Netflix ($NFLX) to launch physical spaces: The entertainment and streaming giant announced “Netflix House,” a new entertainment and retail experience replacing dead department stores across America. The first two will open in 2025 in Dallas, TX, and King of Prussia, PA. [Read]

Wyndham ($WH) unveils $499 Hotel Pass: The hotelier chain is piloting a limited-edition “Ultimate Hotel Pass” for 30 nights at any Wyndham resort. Only 25 passes are available — and stays must be completed by Oct. 1. [Read]

LA Times analysis finds pesticides in cannabis: California cannabis users might need to find a new favorite strain (and dealer, for that matter). A new analysis by the LA Times and WeedWeek found “alarming levels of pesticides” in legal cannabis products. [Read]

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DIGIT OF THE DAY

60% of Central Banks Plan To Add Gold To Their Reserves In The Dollar Departure

Central banks are giving the US dollar a “gold” shoulder by stacking their reserves with gold bars. Despite record gold prices, central banks from advanced economies are embracing gold, reducing their dependence on the US dollar. Gold is valued for its stability in crises — causing central banks to invest in this diversifiable and geopolitically neutral asset to hedge against uncertainties.

• Gold gains ground: Approximately 60% of central banks plan to raise their gold holdings over the next five years — up from ~38% last year, reports the World Gold Council.

• Dollar’s decline: The International Monetary Fund notes a decrease in the dollar’s share of global foreign exchange reserves, dropping from over 70% in 2000 to ~55% by 2023.

Less bang for the buck: Nontraditional currencies like the Chinese renminbi, Australian dollar, and Canadian dollar have increased their combined share of global reserves from under 3% to nearly 12%. While some experts, like those at Morgan Stanley, argue that the dollar can’t be dethroned, countries such as Russia are finding ways to reduce their reliance on it.