New Energy Weekly – Happy New Year

Happy New Year! I hope you had a great celebration

Here at Mangrove Investor, we took some time off to be with our families. It was a good break.

However, over the past week, we began to reconnect with the news and the market. Some experts began pointing out disturbing trends. This one caught my eye (hat tip to @zerohedge on twitter):

This is the first time since the Great Depression that so few stocks made up so much of the index. That’s a trend that we saw building over the past year or two. Basically, a handful of companies are growing huge.

Take Apple Inc. for example. Ten years ago, it was a $580 billion market cap company. Today it’s $3.7 trillion. That’s an incredible 20% compound annual growth rate.

Every dollar you invested in 2015 is worth $5.40 today. That’s an incredible rate of return.

And it’s probably not sustainable.

It’s not alone. Microsoft, Nvidia, Amazon, Meta (Facebook), Alphabet (Google), Broadcom, and Tesla are eight of the nine stocks that make up 34.6% of the S&P 500. The ninth is Berkshire Hathaway, the investment firm.

That means a pullback in those stocks will disproportionately impact the index. However, this market isn’t the same as it was back in the 1930’s before the Great Depression. Technology, particularly algorithms for trading, control much of the stock market today. Theoretically, this removes a lot of the emotions – fear and greed – that led to the big crashes in the past.

However, the “This time it’s different” crowd is almost always wrong. We are cautious in this new year, but not bearish.

For the Good,

The Mangrove Investor Team