Fact of the Week:
The top 3 companies in the S&P 500 now make up ~20% of the index, the highest concentration on record with data going back to 1980.
Overview of the Week
The S&P and the Nasdaq both advanced, posting their sixth gain out of the past seven weeks and each notching record highs. Market breadth was once again narrow (the S&P 500 equal weighted index declined 0.7%). Notably small cap stocks (as represented by the Russell 2000) were down over 2%.
Technology shares were the week’s best performers (+3.83%) with Nvidia gaining ~10% and joining the $3 trillion market capitalization club. Healthcare and Communication Services stocks also outperformed advancing (+1.95%) and (+1.72%) respectively. The worst performing sectors were Utilities (-3.93%), and Energy (-3.48%). Oil logged its third straight week of declines.
Lack of Pullbacks
With the major indices advancing for the week, it is worth reiterating that 2024 has been highly unusual in the lack of major market pullbacks (according to JP Morgan, since 1980 the average intrayear pullback has been 14.2%). The biggest S&P pullback thus far in 2024 has been a mere 5.5%— particularly remarkable amid stubborn inflation, uncertainty about interest rates, and significant geopolitical tensions.
According to financial advisor Edward Jones Investments, the intrayear pullback was smaller in only 4 years (1993,1995, 2017, 2021) out of the past 4 decades. What’s more, the stock market has been relatively calm on a day-to-day basis, with only one daily 2% move in the S&P 500 thus far this year versus an average of 21 occurrences per year since 2015.
Reason for Optimism?
Presidential election years are typically positive for equity performance. According to Ed Clissold, chief strategist at Ned Davis Research, since 1950 the S&P 500 has risen from April 30 to October 31 during 77.8% of election years, with a 3.3% median advance from May to November.
He cautions that years with a close presidential contest have seen the worst stock market performance (whereas landslides tend to produce the best), but since this year’s presidential election is anything but ordinary, any precedents must be taken with a grain of salt—or better yet a heap of salt.
Notable Reads:
Chubb’s CEO on Pricing Risk, Engaging China, and Welcoming Warren Buffett
https://www.barrons.com/articles/chubb-ceo-insurance-climate-china-warren-buffett-b4f435de
Chubb CEO Evan Greenberg has an influential fan in Warren Buffett, the CEO of Berkshire Hathaway. Berkshire disclosed last month that it had accumulated a 6% stake in Chubb, one of the world’s largest insurance companies, at the end of 2023.
Berkshire, itself a major player in insurance, was hardly the only buyer. Chubb’s stock has returned about 40% in the past year, dividends included, besting the S&P 500 total return and earning the company a market capitalization of $110 billion. The gain is a reflection of Chubb’s superior financial performance, which is owed to its sober underwriting practices and conservative management of its roughly $140 billion investment portfolio. The insurer’s earnings per share jumped 48% in 2023, as book value per share rose 21%.
Greenberg, the son of former American International Group AIG CEO Maurice “Hank” Greenberg, worked his way up through the ranks at AIG over a quarter of a century, starting in 1975. He left the insurer in 2000, and by 2004 was running Ace Limited, which merged with Chubb in 2016 in what was then the largest deal ever in the property and casualty industry.
Boyar’s Take: We enjoyed this interview conducted by Barron’s Nicholas Jasinski. We have long-been fans of what Evan Greenberg has accomplished at Chubb and have written favorably on the company in our institutional research service Asset Analysis Focus. One of the things that attracts us to Chubb is how conservatively it is run. As he mentions in the interview, (like Buffett at GEICO) he is perfectly willing to trade market share for underwriting profitability (meaning he is willing to forgo writing insurance if the risk/reward situation is not largely in his favor). It would not surprise us if Berkshire increased its investment in Chubb overtime (depending on valuation of course), and if at some point in the future even purchases the company outright.
Americans Have More Investment Income Than Ever Before
https://www.wsj.com/economy/americans-have-more-investment-income-than-ever-before-84b7a6c6
Lynn Hogan and her husband jokingly call themselves “the turtles” after methodically investing for decades. In the current race against inflation, which has made trips more expensive and $200 grocery bills not uncommon, the mostly retired educators are among those keeping pace.
Returns from slow-and-steady investments, including stock dividends, have allowed the couple outside of Decatur, Ala., to help put one of their daughters through veterinary school. “To them,” Hogan said of her adult children, “prices matter a whole lot more than to us.”
Inflation, for Hogan, “is not a heart-wrenching thing,” she said.
Growing investment income and household wealth have joined near-full employment and rising wages to keep millions of Americans such as the Hogans spending their way through price hikes. The economy’s charge through higher interest rates is putting unprecedented sums into consumers’ pockets, pushing U.S. asset values to records and helping many high earners avoid the withering effects of inflation.
Americans in the first quarter earned about $3.7 trillion from interest and dividends at a seasonally adjusted annual rate, according to the Commerce Department, up roughly $770 billion from four years earlier. In the last quarter of 2023, wealth held in stocks, real estate and other assets such as pensions reached the highest level ever observed by the Federal Reserve.
Boyar’s Take: Worthwhile read on the impact (both positive and negative) of higher rates on both the consumer and the economy. A staggering fact from the article: Americans in the first quarter earned about $3.7 trillion from interest and dividends up roughly $770 billion from four years earlier.
Where to Find 7% Yields on Preferred Stock
https://www.barrons.com/articles/high-yields-preferred-stock-treasuries-cb792cfd
There’s an awful lot to like right now about some preferred stocks.
The market for preferreds now offers 7% yields on a variety of recent bank deals, a nice premium above the 4.65% rate on the Treasury 30-year bond. Investors also get a tax benefit. Generally, preferred dividends are taxed like those on common shares rather than at ordinary income-tax rates.
Citigroup issued $1.75 billion of 7.125% preferred in May and regional banks M&T Bank and Citizens Financial Group sold preferred with 7.5% and 7.375% dividend yields, respectively.
Both the $750 million M&T Series J issue and $400 million Citizens Series H issue trade around their face value of $25 a share on the New York Stock Exchange.
Boyar’s Take: Barron’s Andrew Bary identifies some attractively priced preferred bank stocks (not investment advice!). For those looking for tax efficient income (and have confidence in the U.S. banking system), preferreds could be a fertile hunting ground. Preferred stocks are not without their risk however as Bary points out that investors in Silicon Valley Bank and First Republic preferreds were burned after they failed.
NYSE Cancels Erroneous Trades of Berkshire Hathaway and Other Stocks After Glitch
https://www.ft.com/content/034ee1bf-6363-4058-9851-ff406c9e7ae4
The New York Stock Exchange said it would cancel erroneous trades after a technical glitch led to dozens of trading halts for US-listed companies and exchange traded funds.
Class A shares in Warren Buffett’s Berkshire Hathaway appeared to plunge 99 per cent on Monday morning before a trading pause — which prohibits trading activity in exchange-listed securities at prices outside specified price bands — was initiated.
LSEG data recorded a handful of trades at a price of $185.10 per share, compared with a previous price of $621,484. NYSE said after markets closed on Monday afternoon that all trades at or below $603,718.3 would be cancelled.
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Important Information: Performance Information. Past performance does not guarantee future results. The reports in this sample are for informational purposes only and the performance of the stocks selected is not indicative of the performance of all the stocks profiled in Boyar Research. The performance of the stocks selected and the performance of the stocks in Boyar Research may in fact diverge materially. Additional information regarding the performance of other companies featured in Boyar Research is available from Boyar Research upon request. This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by affiliates of Boyar Research. Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Clients of an affiliate of Boyar Research and employees of Boyar Research own shares in Chubb Ltd.