By Brian Maher
This post The “New” Financial Weapons of Mass Destruction appeared first on Daily Reckoning.
Please. Blindfold your eyes.
Then grab a dart and heave it in the general direction of Wall Street.
If it doesn’t make you money… your dart-tossing just isn’t what it could be.
Such is the stock market, 2017.
Stocks trade near record highs.
Every random throw of the dart seems to find bull’s-eye… as if the bull’s-eye itself was a giant magnet… attracting the humblest stock that falls within its field.
But is it true? Are most stocks winners?
Goldman issued a report about the stock market Wednesday. “Eye-opening” might be one term to describe it.
“Scary” might be another.
Details to follow.
But first a look at the dart board…
The magnet’s faulty today. The Dow’s off 23 points. The S&P’s down four points of its own. But the Nasdaq’s up a nickel.
Gold’s up five bucks and change… for what it’s worth.
Now… if it seems that any old stock is a potential ticket to the good life, you might have another guess…
According to Goldman, a mere 10 stocks — 10 stocks — account for almost half the S&P’s gains for the year.
Forty-six percent, to be precise.
This year’s bull’s-eye stocks are the so-called FAANGs — Facebook, Amazon, Apple, Netflix and Google.
Rounding out the top 10 are Visa… Philip Morris… Oracle… Home Depot… and Broadcom.
Most other stocks are zeroes — or worse.
But the winners shine so brightly they blind.
David Stockman in yesterday’s reckoning:
“During the last 70 days, the FAANGs have gained $260 billion in value, while the other 495 companies in the S&P 500 have lost an identical amount… Other than the five FAANG stocks, the market has been silently collapsing since March 1.”
Meanwhile, recent data from Fundstrat Global Advisors reveal that just 40 stocks out of 500 — 8%, that is — account for some 85% of the S&P’s gains this year.
If you’ve had a tough time reconciling your own portfolio with the constant yak about record markets… you just might have your answer.
You picked the wrong darts.
Earlier we suggested the word “scary” to describe the foregoing.
But why?
Just throw in your lot with the FAANGs and maybe a handful of others. Then lie back on your oars. Let the rising tide lift your boat.
Ah, yes. But what happens when the tide rolls back out?
If just a handful of stocks drive the market higher, they can also drive it in the other direction.
Down.
And fast…
We recently reckoned about a creature called “risk parity.”
“Risk parity,” we wrote, “attempts to distribute risk across several asset classes by allocating more money to lower-volatility investments and less money to higher-volatility securities.”
Normally that might involve a bias for bonds over stocks — bonds generally offer less risk.
But stock market volatility has been so low lately, many stocks seem as sure as a three-month Treasury.
The FAANGs, for example.
So these risk parity funds have abandoned the tranquility of bonds for the easy waters of stocks.
It’s a type of “passive investing.” Passive, because it goes with the tide.
But when the tide recedes… it recedes.
If …read more
Source:: Daily Reckoning feed
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