To The Moon

The S&P 500 this year is up 8.6%, despite the Federal Reserve increasing interest rates to 5.0% to 5.25% last week, its 10th interest rate hike in about a year. This would represent the highest since August 2007.

S&P 500 Sector Performance

Reviewing the year-to-date sector performance, technology is up 20.41% while communication services is up 18.22%. The third best sector is consumer cyclical (also known as consumer discretionary) which is up 11.25%. The worst performer of the year has been energy, down 5.41%, which is not a surprise given that in 2022 it was the best performing sector. 

S&P 500 sector performance as of May 5th close

Looking at the top 10 stocks of the S&P 500 by weight, mega cap stocks like Apple is up 38.78% in 2023, while Nvidia is up 100.35%!

Top 10 holdings of S&P 500 by weight & year-to-date performance

* Apple (AAPL): 7.28% weight, +38.78% ytd performance

* Microsoft (MSFT): 6.60% weight, +29.66% ytd performance

* Amazon (AMZN): 2.68% weight, +23.11% ytd performance

* NVIDIA (NVDA): 2.02% weight, +100.35% ytd performance

* Alphabet Class A (GOOGL): 1.82% weight, +18.46% ytd performance

* Berkshire Hathaway (BRK.B): 1.70% weight, +4.51% ytd performance

* Alphabet Class C (GOOG): 1.60% weight, +18.41% ytd performance

* Meta (META): 1.55% weight, +86.61% ytd performance

* UnitedHealth Group (UNH): 1.34% weight, -4.7% ytd performance

* Exxon Mobil (XOM): 1.32% weight, +2.04%

S&P 500 equal weight index

Meanwhile, looking at the S&P 500 Equal Weight Index year-to-date performance, it only gained 1.19% in 2023. The Equal Weight Index includes the same constituents as the capitalisation weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight, or 0.2% of the index total at each quarterly rebalance.

Investors have realised that as the interest rates move into a restrictive territory, only companies that are profitable and still bringing in increasing revenues, with improving operating margins and net income, generating positive free cashflow, and bringing value to shareholders, e.g. by increasing dividends or share buybacks are the ones to allocate to in this environment. Companies that are not performing, or are still continually losing money, burning cash will eventually be pushed aside.

Volatility expected to rise 

VIX remains low

The Volatility Index (VIX) has again dipped below 20 since the end of March. Throughout the most of 2022, the VIX was largely above 25, and often went above 30, indicating fear in 2022. 

With a debt ceiling crisis looming, that perhaps the US could default on its debt, there will be some fears expected, which will cause some volatility in the markets. Also, the markets enter the "Sell in May and go away" season, where stocks historically underperform between May and November. 

Such volatility will present good opportunities for long term investors to buy into the companies that they may have missed out this year!

$Apple(AAPL)$ 

$Microsoft(MSFT)$ 

$NVIDIA Corp(NVDA)$ 

@TigerStars 

@CaptainTiger