New Energy Weekly – Not to Beat a Dead Horse
Not to beat a dead horse, but we are extremely cautious moving into the new year
Giant investment bank Vanguard, there are real risks to the stock market in 2025. Investors must weigh the risks and returns:
The investment challenge is a growing point of tension in risk assets between momentum and overvaluation. Assets with the strongest fundamentals have the most stretched relative valuations, and vice versa. The economic and policy risks for 2025 will help determine whether momentum or valuations dominate investment returns in the coming year.
In other words, the price of stocks may be well ahead of the value of those businesses. That was okay when the market was ripping higher. But as the economic outlook cools, the momentum will slow. Investors will take profits and the stock market will either slow or turn down.
We are seeing some of that right now. The VanEck Semiconductor ETF (NYSE: SMH) holds some of the best performing tech stocks in the world:
- NVIDIA (22% of assets)
- Taiwan Semiconductor (13% of assets)
- Broadcom (7.5% of assets)
- Advanced Micro Devices (4.4% of assets)
- Texas Instruments (4.3% of assets)
- QUALCOMM Inc (4.1% of assets)
- Applied Materials (4.1% of assets)
- Intel Corporation (4.0% of assets)
These stocks are some of the best performing assets over the past five years:
As you can see, from January 2020 to today, SMH returned 263%. That’s compared to an 87% return for the S&P 500. But as you can see, SMH is down from its high. That means folks are taking profits.
And as these giant tech companies decline, it will impact the S&P 500 as well. Be cautious.
For the Good,
The Mangrove Investor Team
