Last week, the Dow Jones topped an all-time high. The S&P 500 (SPY) (IVV) and Nasdaq (QQQ) also did the same. These new highs are worrisome because their valuations continue to rise.
Markets are pricing for an acceleration in corporate earnings growth. Magnificent seven firms will lead the profit growth, especially Nvidia (NVDA) and Microsoft (MSFT). Meta Platforms (META) will continue to hire top-notch staff to fund its “supercomputer” AI project. Tesla (TSLA) and Amazon (AMZN) will also allocate significant funds to capital expenditures.
The new highs in the indices might lead to higher highs. However, companies in traditional sectors will likely underperform. Food companies like Conagra (CAG) and Tyson Foods (TSN) will struggle. Their profit margins are under pressure as inflation hurts demand. Unlike Coke (KO) or Pepsi (PEP), they do not have as much flexibility in hiking prices to cover inflationary costs or tariffs.
Market breadth is in poor shape. Companies representing the real economy are not performing well. Shareholders expect growth to slow as consumers cut spending. For example, shares of Starbucks (SBUX), Chipotle (CMG), Dollar General (DG), Target (TGT), and Estee Lauder (EL) fell in the last month.
The tech sector also has mixed performance. Synopsis (SNPS) and Palantir (PLTR) lost 31% and 7%, respectively, last month.
Related Stories
