Your Money

The US stock market has recently hit a significant milestone, with the top 10 stocks accounting for a weighty 33% of its composition, marking the highest concentration level in over half a century. While believing that "this time is different" is tempting, historical market patterns suggest otherwise. We've seen this plot unfold before, albeit with different characters.

1. The weight of the top 10 stocks has been increasing much faster than their earnings. The last time a gap of this magnitude appeared was at the height of the dot-com bubble and then the Nifty Fifty bubble of the late 1960s.
2. The price-to-earnings ratio (P/E ratio) of the top 10 stocks compared to the bottom 490 stocks is at an extreme not seen since the peak of the dot-com bubble (excluding the COVID-19 period, which affected earnings figures.) Historically, when the P/E ratio of the bottom 490 has been this inexpensive relative to the P/E ratio of the top 10, the bottom 490 have outperformed by 4.5% on average over the next five years.
3. Even after considering the recent outperformance of the top 10, the bottom 490 have outperformed the top 10 in 70% of 5-year rolling periods since 1970.
4. When concentration in the top 10 is 30% or more, the bottom 490 have historically outperformed 95% of the time over the next five years.
5. A rise in concentration and valuation levels often precedes a period of heightened volatility and more significant drawdowns for the largest stocks.

Your Life

Midlife crisis. Yes, it’s still a thing. The words conjure images of an older man dumping his wife for a younger woman and a party lifestyle—which can still be true. By definition, a midlife crisis is a period of transition in life where someone struggles with their identity and self-confidence. It includes feelings of anxiety, restlessness, dissatisfaction with life, and a strong desire for significant life changes. It affects both men and women and occurs anywhere between age 40 and 60, but the stereotypical, often impulsive behaviors seem to be more associated with men. It is not a disorder and is mainly psychological. While women usually experience them during times of transition, particularly hormonal changes, men often feel “trapped” in their current lifestyle as they become suddenly cognizant of time’s relentless march forward. A variety of occurrences can become the impetus. It can also be confused with or even lead to depression. There are ways to manage your midlife crisis effectively.

Midlife Crisis: Signs, Causes, and Coping Tips
by Sheldon Reid

Complexity Simplified

Did you know that the US Consumer Product Safety Commission posts an online list of products that have been recalled? It is continuously updated and includes not only the name of the product but also a description of the hazard it poses, instructions on what to do if you have one of these recalled products, how many were recalled, and a consumer contact for the company. It’s worth taking a look monthly. You might be surprised at what you find.

Recalls
source: US Consumer Product Safety Commission

Trivia