We’ve had some good economic news this month as job growth has remained strong in May while consumer prices stayed flat. As such, inflation fell from 3.4% to 3.3% and unemployment rose to just 4.0%.
While it was great to see prices stabilize last month, it may be a bit early for celebration as the inflation rate remains stubbornly above 3.0% and is currently higher than it was a year ago.
Markets reacted positively to the news, although it’s becoming more difficult to talk about “the stock market” since it’s really behaving more like two stock markets. There’s a handful of huge tech companies at the top, then there’s everyone else. In fact, the S&P 500 has never been this concentrated with 3 stocks making up 20% of the market’s value, and just 10 stocks accounting for 35%.
https://finimize.com/content/us-market-concentration-reaches-historic-highs-amid-tech-boom
This has led to major dislocations in the equity markets as the S&P 500 (blue), the Dow (red), and dividend stocks (green) look very different this year.
Shockingly, there is just one AI-related company responsible for approximately one-third of the gains in the S&P 500 this year.
While the huge tech companies at the top of the market may be great companies, it’s important to remember anything that goes up quickly can go down quickly. And with the market’s performance now heavily influenced by this handful of companies, as they go so goes the market.
Have a great weekend.
Jack C. Harmon II, CFP®, CIMA
Principal, Harmon Financial Advisors
Registered Principal, Raymond James Financial Services
Harmon Financial Advisors, Inc. is an independent, fee-based financial planning firm and an independent Registered Investment Advisor. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. and Harmon Financial Advisors, Inc. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Harmon Financial Advisors, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc.
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The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
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