- Insight Weekly
- Posts
- Is it better to invest in the S&P500 ?
Is it better to invest in the S&P500 ?
An easy to read weekly round up
INSIGHT WEEKLY : June 2, 2024
If the images do not load, click to download external images in your email to see the newsletter in full, or click the link above to read online.
An easy to read, weekly summary to be well informed of the topical issues of our times.
🌐 Major indexes and major stocks
Major markets closed lower over the holiday-shortened week.
Falls in the week but the month of May had gains. There were two new records in the week.
Nasdaq Composite hit a new record before falling back. Nvidia took the index higher but a sharp decline due to Salesforce, after it missed first-quarter revenue estimates.
India’s Nifty 50 also set a new record this week before falling back.
Major stocks of interest :
Large gains in the index last week on the back of Nvidia’s results, and despite further gains from ARM and Nvidia this week, the overall index (of 30 companies) is down this week. Heavily influenced by the outlook for AI, this index is worth watching.
🇬🇧 UK
House prices returned to growth in May, rising by 0.4% to an average of £264,249, according to Nationwide. This follows a 0.4% drop in the previous month.
Over the year to May, house prices increased by 1.3%, compared to 0.6% growth in the year to April. Improved consumer confidence, supported by solid wage gains and lower inflation, has contributed to market resilience despite high affordability pressures.
However, high house prices and mortgage rates remain significant barriers for many buyers. The average two-year fixed mortgage rate is currently 5.92%, and the five-year rate is 5.49%. Nationwide's data, based on its mortgage lending, shows that cash buyers, who account for about a third of sales, are not included in their figures.
Interest rates set by the Bank of England have been at 5.25% since last year. The BOE will announce its next interest rate decision on 20 June. While headline inflation has slowed to 2.3% in April, inflation in the services sector remains high at 5.9%. This persistent inflation pressure, particularly in the services sector, complicates the Bank's decision to cut interest rates. Despite slowing overall inflation, the underlying price pressures necessitate caution from the Bank of England, as they aim to maintain a 2% inflation target.
FTSE100 is -0.5% this week and +7.0% this year after hitting a record two weeks ago.
🇺🇸 US
S&P 500 and Dow 30 are two of the major indices for the US market. In conversation, the term “market” usually means the S&P500. The S&P 500 covers all market sectors and has 500 companies in the index. The Dow 30 excludes transportation and utilities and has 30 companies in the index.
A more detailed comparison can be seen here :
Last 5 years :
Performance summary :
Investing in the S&P 500 is more popular with investors who buy the index via funds and ETFs (Exchange Traded Funds). A scorecard report from S&P Dow Jones show that 60% of managed funds failed to beat the S&P500. A majority of large cap funds have underperformed the index in the last fourteen years.
Here is a quote from the sage :
“In my view, for most people, the best thing to do is to own the S&P 500 index fund. People will try and sell you other things because there’s more money in it for them if they do. “
Warren Buffet
The Commerce Department’s PCE price index report showed core PCE prices, the Fed’s preferred inflation gauge, rose 0.2% in April. This is down from the previous two months, indicating a period of easing inflation pressures following January’s 0.5% spike. With inflation remaining sticky, the conversations now are more about one interest rate cut in 2024 or maybe none at all.
If you are liking this newsletter, please send this link to friends, family and colleagues and post on social media. https://insight-weekly.beehiiv.com/subscribe
🇯🇵 Japan
Nikkei 225 Index was -0.4% this week, and up 15% in the year. And still below the 1989 highs.
Yen depreciated to around JPY 157.3 against the U.S. dollar, continuing to hover near 34-year lows. How much did the government spend on supporting the yen ? Monthly data for the period from April 26 to May 29, is expected to be released after market close on Friday. There were probably two interventions in the foreign exchange markets twice late in the period to support the yen.
Comments about the stock market and the currency tend to refer to the 1980’s.
What happened in the 1980’s in Japan ?
Japan experienced significant economic growth driven by industrial production, technological innovation, and a surge in exports. Speculative investments led to a massive bubble in real estate and stock markets, fuelled by loose monetary policies and low interest rates from the Bank of Japan.
The 1985 Plaza Accord caused yen appreciation, increasing investor purchasing power. Financial deregulation and corporate practices further inflated the bubble. Asset prices peaked by the late 1980s, but the bubble burst in the early 1990s, leading to the "Lost Decade" of economic stagnation, deflation, and slow growth as asset prices plummeted.
What was the Plaza Accord ? The 1985 Plaza Accord was an agreement between France, West Germany, Japan, the US, and the UK to intervene in currency markets to depreciate the U.S. dollar. Signed on September 22, 1985, the Accord aimed to address trade imbalances caused by the strong dollar, which made U.S. exports expensive and imports cheap. As a result, the dollar's value dropped sharply, and the Japanese yen and German Deutsche Mark appreciated. This helped improve U.S. export competitiveness but had significant economic impacts on Japan and Germany, influencing their economies in the following years.
See previous spotlight on Japan.
🌐 Artificial Intelligence
This cover has been designed using assets from Freepik.com
xAI announces $6 billion of funding in a Series B Funding Round. Elon Musk founded xAI last summer. This funding aims to bring xAI’s first products to market, build infrastructure, and accelerate research and development. Musk founded xAI to develop advanced AI systems that are “truthful, competent, and maximally beneficial for all of humanity”.
One of xAI’s first offerings is Grok, an advanced AI model currently available to X Premium subscribers, which outperforms several competitors but still trails behind top models like OpenAI’s GPT-4.
Major investors in xAI’s latest funding round include Andreessen Horowitz, Sequoia Capital, Valor Capital, Fidelity and Saudi Prince Al Waleed bin Talal and Kingdom Holding among others.
The AI race continues to be costly, with significant investments from tech giants into AI startups and their own projects. Also, Tesla remains focused on hiring AI engineers for self-driving cars.
Google announced that it will refine its AI-generated search result summaries after facing backlash for bizarre and inaccurate responses, such as recommending people eat rocks or add glue to pizza sauce. To address these issues, Google is restricting the types of searches that generate AI Overviews and limiting the inclusion of satire and humor content. The company noted that the inaccuracies affected fewer than 1 in 7 million unique search queries. Released in the US this month, the AI Overviews feature quickly produced viral errors by misinterpreting satirical sources like The Onion or joke Reddit posts. Google explained that many falsehoods were due to gaps in information or intentional attempts to provoke errors and that unusual searches like "how many rocks should I eat" led to absurd results, while more reasonable queries also produced inaccuracies. Google is implementing over a dozen technical improvements to address these issues.
PwC announced a partnership with OpenAI on Wednesday, becoming OpenAI's first resale partner and largest enterprise user. This agreement allows PwC's U.S. and U.K. firms to offer ChatGPT Enterprise, the business-focused AI chatbot, to their employees and clients. PwC aims to integrate generative AI deeper into its operations and scale AI capabilities across businesses to enhance client services. The deal grants over 100,000 PwC employees access to OpenAI's latest tools, including the ChatGPT-4o model with voice and image capabilities. PwC emphasized its unique position to help clients leverage ChatGPT Enterprise for improved efficiency. While financial terms were not disclosed, the partnership aligns with PwC's $1 billion investment over three years to expand AI capabilities. OpenAI, facing high computing costs, is increasingly focusing on premium subscriptions and enterprise sales, marking this partnership as part of its broader strategy to monetize its AI products.
🌐 Crypto Corner
Ether spot ETFs applications from BlackRock, VanEck, Fidelity, ARK 21Shares, Grayscale Investments, Franklin Templeton, and Bitwise were approved by the US SEC on May 23, 2024. This approval allows these issuers to list and trade spot Ether ETFs on exchanges. However, these firms must still get their Form S-1 investor disclosures approved by the SEC before officially beginning trading. The timeline for SEC approval of these statements remains unclear due to a lack of set deadlines. Ark has just withdrawn from Ether spot ETFs to seek better alternatives.
The charts below show ETH and Bitcoin over the last 12 months. Will ETH follow the Bitcoin pattern from the first day of trading ?
What’s next for crypto spot ETF’s ? If Ether clears the final hurdle, will there be others ?
Ripple CEO Brad Garlinghouse expressed optimism about the future of an XRP exchange-traded fund (ETF) in the US, predicting its inevitability alongside potential Solana and Cardano ETFs. Despite the regulatory challenges and lack of clarity from the SEC, particularly regarding Ether's status as a security, Garlinghouse believes the approval of a spot Ether ETF sets a precedent for other altcoin ETFs. He criticized the SEC for its ambiguous stance, which he sees as a barrier to cryptocurrency innovation. This follows Garlinghouse’s earlier prediction in February 2024 about the rise of altcoin ETFs, likening the diversification to the early stock market. Ripple supports the idea of an XRP ETF, with Garlinghouse confident about multiple ETFs for various tokens. However, analysts from Standard Chartered, including Geoffrey Kendric, project that the approval for XRP and Solana ETFs is more likely to occur in 2025 due to current regulatory and market conditions.
Are cryptocurrencies asset classes or currencies ? So far, they appear to be a store of value as an asset class.
See previous newsletter spotlight on Bitcoin halving.
🏅5️⃣ Billionaire Leaderboard
Mostly driven by stock market performance :
Change in week :
Elon Musk (Tesla, SpaceX) $210bn ⬆️ $13bn (up two places)
Bernard Arnault and family (LVMH) $201bn ⬇️ $4bn
Jeff Bezos (Amazon) $194bn ⬇️ $4bn
Mark Zuckerberg (Facebook/Meta) $163bn ⬇️ $4bn
Larry Ellison (Oracle) $146bn ⬇️ $6bn
If you liked this newsletter, please send this link to friends, family and colleagues and post on social media. https://insight-weekly.beehiiv.com/subscribe
Stay tuned for more insights and updates each week.