Broker Check

Monday Morning Report

| February 26, 2024

The market is still on a roll, with the S&P 500 setting yet another record high. The index is up over 7% year to date. A deeper look shows that the index remains highly concentrated, with the so-called Magnificent Seven continuing to drive much of the returns. In fact, just one stock is responsible for 28% of the market’s gains, and four stocks accounted for about 60% of the year-to-date gains.[1]  

The index hasn’t been this concentrated in 50 years.[2]  Many references have been made to the tech-bubble bursting in 2001.  There’s a key difference now, in that the top stocks are largely profitable, well-run companies, unlike the late 1990’s, when unprofitable companies were overvalued simply because they were online. What does this mean for the average investor? If you own a diversified portfolio, you probably own the Magnificent Seven. Understand that, because you own things besides those seven stocks, your returns may not be as high as the index.  That’s okay, because you are taking less risk by owning a bunch of different stocks and bonds in different industries.

At the end of the week, the Federal Reserve’s favorite measure of inflation, the CPE, will be released. While inflation has remained higher than normal, that’s not the only thing that impacts your budget.  Lifestyle creep is often a bigger factor. It happens naturally, as incomes rise and possibly as some expenses, like diapers or daycare, drop off.

Think about things that used to be a luxury and are now everyday expenses. Once-a-week lattes or lunches out are now several times a week, if not every day. Dining out, what used to be a special event, is commonplace. Luxury goods, from clothes and handbags to kitchen items, are normal. And it makes sense.  We work hard, we’re busy and stretched thin. But I often work with families who need to save more for retirement, college, or other goals, and they wonder how to do it.

Part of the answer is to become more focused on your money.  Keeping a spending log or taking time to go through your check register and credit card transactions, can identify areas that would be easy to cut back. Another helpful trick is false scarcity. Most of us tend to spend what comes into our checking accounts. That’s why 401(k)s and other employer-sponsored plans work so well: you never see the money. You can split your paycheck into two accounts, so that saving is automatic.  Automating other savings, like a 529 plan or IRA, can help as well.

If cash flow is still an issue, consider a second savings account, one that is meant to be spent. Which seems like the opposite of why you have a savings account, right? In this case, setting aside money each month for car maintenance, semi-annual bills, or other large, irregular expenses can smooth out cash flow. It’s like budget billing for your electricity or heating oil.

Your action item this week is to check the interest rate on your savings account. If you’re earning under 4%, see if your bank has a high-yield savings account or money market that would give you a better return.   

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CovingtonAlsina is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

[1] Barron’s What’s Behind the S&P 500’s Spectacular Gains, in 4 Charts by Evie Liu 02/24/24