Why such a bad end of May & start of June?

[street]

As long as there is high inflation, high interest rates, excessive government spending, and over regulation, there will be a drain on corporate profits, which eventually shows up in the DJIA.

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Street, don't fret over it as it's only money when you have to sell. Otherwise, it's just numbers (digits) on a website.

Yep, so true.

 

[FREE866]

As long as there is high inflation, high interest rates, excessive government spending, and over regulation, there will be a drain on corporate profits, which eventually shows up in the DJIA.

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If you look at historical data we are certainly NOT experiencing high inflation ( last 12 months is running around 3-3-5%) , or high interest rates ( 10 year at ~4.5% is actually on the low side). Tax revenue far surpasses any uptick in interest expense due to increased spending and your last point about "over regulation" doesn't carry much weight as access to capital is strong and banks are still lending at a pretty good rate.

 

[jimbee]

Corporate profits shrinking?

 

[Ronstar]

If you look at historical data we are certainly NOT experiencing high inflation ( last 12 months is running around 3-3-5%) , or high interest rates ( 10 year at ~4.5% is actually on the low side). Tax revenue far surpasses any uptick in interest expense due to increased spending and your last point about "over regulation" doesn't carry much weight as access to capital is strong and banks are still lending at a pretty good rate.

But historical data doesn't create swings in the DJIA. It's the difference in these factors over time that creates the swings in the DJIA.

A few years ago we had low inflation and low interest rates. In the case of interest rates, 30 year mortgage rates went from around 3% to almost 8% in 2022 and 2023. Sure rates have recovered slightly, but the results of more than doubling mortgage rates is now coming home to roost.

As far as inflation, inflation of 2021-2023 was 3 times the rates of the previous 3 years. And keep in mind that this data has a compounding effect. The affects of this are taking its toll on corporate profits and therefore the DJIA.

Inflation:

 

[street]

Yes, inflation is high and is killing the buying power. The cost to lve in the last 3 to 4 years has been a killer for everyone. They can put any number of percent on inflation you want but inflation is real and has been out of control and it makes a huge difference in growth/spending.

 

[FREE866]

But historical data doesn't create swings in the DJIA. It's the difference in these factors over time that creates the swings in the DJIA.

A few years ago we had low inflation and low interest rates. In the case of interest rates, 30 year mortgage rates went from around 3% to almost 8% in 2022 and 2023. Sure rates have recovered slightly, but the results of more than doubling mortgage rates is now coming home to roost.

As far as inflation, inflation of 2021-2023 was 3 times the rates of the previous 3 years. And keep in mind that this data has a compounding effect. The affects of this are taking its toll on corporate profits and therefore the DJIA.

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Inflation:


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Corporate profits are at record levels.
And given the fact that the DJIA is price weighted I don't use that as a benchmark for the market. The S and P , being cap weighted, is a more appropriate gauge.

Regardless, I think you're trying to profess a "if x then y will happen " argument and I've learned , over the years, markets don't really work that way. If they did it would be easy. Multitude of factors always going on which I think is why picking individual stocks or predicting where markets are going is near impossible.

What we do know , with a century of evidence, is that the markets log term return of ~10% INCLUDES bear markets. So if one wants market returns don't be swayed by one month or even one years returns!

 

[FREE866]

Yes, inflation is high and is killing the buying power. The cost to lve in the last 3 to 4 years has been a killer for everyone. They can put any number of percent on inflation you want but inflation is real and has been out of control and it makes a huge difference in growth/spending.

Consumer spending , factoring in inflation, is still very strong. It certainly, as of yet, is not making a huge difference in growth as companies are reporting, for the most part, growing earnings.

 

[Dtail]

And yet the S&P is now back at a record high.

 

[Exchme]

My favorite index to watch is the Yahoo finance S&P 500 Total Return (^SP500TR), which automatically adjusts the index for dividends paid. It closed at an all time high yesterday (June 5) and is up 6.8% since May 1. How much better performance should we ask for?

The DOW is a flawed index as it is not capitalization weighted, but weighted by the share price of the (far too few) stocks it tracks - so a large company that prefers to keep its share prices low is represented less than a small company that prefers to keep its price per share high. That simplicity was a necessity a hundred plus years ago when the Dow started, but it's a very poor method in today's world when computers can calculate capitalization weighting in an instant.

 

[Andre1969]

For me, the end of May was just a quick blip, although I'll admit I didn't enjoy it at the time. Most of that was just psychological though. I had hit a new all-time high on the May 21 where I was about $1200 short of a new $100K milestone, so I was getting a bit antsy for the continued momentum.

But, in the overall scheme of things, my YTD return for this year has been:
9.46% as of 5/21
8.58% as of 5/31
9.72% as of 6/5.

And now I'm over that next $100K threshold. I woke up in the middle of the night, couldn't sleep, added it all up. Was giddy for a moment. Then scrolled through the tv menu to find something to help me fall back asleep. Found "Saw X", ended up watching the whole thing, slept for a bit afterwards and now it's like meh, on with the day.

 

[Koolau]

And yet the S&P is now back at a record high.

Heh, heh, you mean it was down before? Guess I missed it.

 

[ShokWaveRider]

If you look at historical data we are certainly NOT experiencing high inflation ( last 12 months is running around 3-3-5%) , or high interest rates ( 10 year at ~4.5% is actually on the low side). Tax revenue far surpasses any uptick in interest expense due to increased spending and your last point about "over regulation" doesn't carry much weight as access to capital is strong and banks are still lending at a pretty good rate.

Agreed, a sensible evaluation. The problem is folks are comparing to the 10 years or so of ultra-low interest rates, that were falsely held down by an over reacting FED. Compare it to the late 80's and 90's to be more realistic. I think our current inflation & interest rates, are more normalized than the days of 2.x% mortgages and ultra-low interest rate loans. Folks are never happy. I personally think that the current rates between 5-7% interest rates for loans is way more realistic. Just my humble opinion, I could be wrong.

 

[38Chevy454]

Just remember, the market is not the economy. They are lightly correlated, but short term economy has no correlation.

 

[FREE866]

Just remember, the market is not the economy. They are lightly correlated, but short term economy has no correlation.

That’s a fair point. However , stock prices over the long term do tend to reflect corporate earnings. There are gyrations obviously but over the long term stocks do mirror the corporate profit picture.

 

[marko]

What I find odd is that over the past few weeks the Dow might be up 100 and the S&P down -30 or vice/versa. Usually they align more with both being either up or down, very often with the S&P roughly 10% of the Dow.

It screws up my homemade algorithms which typically work fairly well at predicting my days results. When one is way up and other negative, the models don't work.

 

[marko]

A lot of articles on the stock market is shrinking. Here just one article from just one source.

People are exiting the stock market in droves

The summer months are usually relatively benign for markets as investors opt for sandbars in lieu of bar charts, but that’s not happening this year.

finance.yahoo.com

Maybe some profit taking, sitting in cash until the election is decided? The market hates uncertainty. I'm not concerned. May's dividends were stellar for me and much above expectations.

 

[Koolau]

Agreed, a sensible evaluation. The problem is folks are comparing to the 10 years or so of ultra-low interest rates, that were falsely held down by an over reacting FED. Compare it to the late 80's and 90's to be more realistic. I think our current inflation & interest rates, are more normalized than the days of 2.x% mortgages and ultra-low interest rate loans. Folks are never happy. I personally think that the current rates between 5-7% interest rates for loans is way more realistic. Just my humble opinion, I could be wrong.

To me, it's less about the current level of interest rates but just how quickly they can rise - due to inflation. Nearly the only "lever" to control inflation is the interest rates. Without the current (and very recent) inflation, we would still be at relatively low interest rates. YMMV

 

[OldShooter]

It screws up my homemade algorithms which typically work fairly well at predicting my days results. When one is way up and other negative, the models don't work.

Random has a way of doing that.

 

[marko]

Random has a way of doing that.

All the algorithm does is predict my day's final dollar gain or loss within a few $k. It's pretty good 81% of the time. But +1, the mix can screw it up.

 

[DCdave]

A lot of articles on the stock market is shrinking. Here just one article from just one source.

People are exiting the stock market in droves

The summer months are usually relatively benign for markets as investors opt for sandbars in lieu of bar charts, but that’s not happening this year.

finance.yahoo.com

The stock market is shrinking and people are leaving the market in droves??
The Vanguard Total Stock Market ETF, which is VTI, has had returns of 11.41% YTD (as of today) and 23.54 in the past twelve months which is FANTASTIC!!! I, and no one else, can predict the immediate future but it’s beyond comprehension that the article claims people are leaving the market “in droves” but yet the VTI has had an impressive return 11.41% YTD. That could not be happening if investors were bailing out.

 

[Koolau]

The stock market is shrinking and people are leaving the market in droves??
The Vanguard Total Stock Market ETF, which is VTI, is up
11.41% YTD and 23.54 in the past twelve months which is FANTASTIC!!! I, and no one else, can predict the immediate future but it’s beyond comprehension that the article claims people are leaving the market “in droves” but yet the VTI is up an impressive 11.41% YTD. That could not be happening if investors were bailing out.

Sounds like normal volatility to me but I'm no expert so YMMV. It may be as simple as folks dealing with inflation by cashing in their savings right now.

 

[DCdave]

Sounds like normal volatility to me but I'm no expert so YMMV. It may be as simple as folks dealing with inflation by cashing in their savings right now.

My point is that the article is flawed/makes no sense.
If people were bailing out of the market “in droves” it would would be going down but the total stock market YTD and 12 month returns are 11.41% and 23.54% !!! I would be thrilled with that each and every year.

 

[Koolau]

My point is that the article is flawed/makes no sense.
If people were bailing out of the market “in droves” it would would be going down but the total stock market YTD and 12 month returns are 11.41% and 23.54% !!! I would be thrilled with that each and every year.

Heh, heh, you and me both. A few more years like that and we'll all be "rich" - whatever that means.

The stock market is the easiest money I've ever made here of late. Hope it keeps up, but I won't hold my breath.

 

[JoeWras]

I have to take a shower after scanning that article. It is an opinion piece disguised as "analysis" by someone who needed to get every gripe out from a certain point of view.

 

[Aerides]

idk, there might be some points. Percent up is not a measure of size. It does state there are 4300 public companies today in (presumably) the DOW, whereas that number was 7300 in 1996, and there are far more private companies than before - that all underscores the "market is not the economy" argument.

If more private investors are going to these private companies and equities then, yes, the market is smaller. And that has happened a lot.

The title is clickbait (and journalists almost never get to write their own titles) but if there were a pie chart of where people's money is today, it would appear the slice that's in the public-stock-market is smaller than in recent history, and I'd buy that.