How to Invest in a Market Propped Up by Tech ... and Not Much Else

With my apologies to Charles Dickens, this is the best of times, the season of light, and the spring of hope — for a select few stocks and sectors.

For everyone else, it’s the worst of times, the season of darkness, and the winter of despair.

If you own technology stocks, you’re as happy as can be. Especially the group I call the “S&P five” that includes mega-cap names like Apple (Nasdaq: AAPL, Rated “B-”) and Microsoft (Nasdaq: MSFT, Rated “B+”).

If you own financials, transports, energy, small caps and many other groups — you’re wallowing in a pit of despair.

The year 2020 is truly a “Tale of Two Markets.” Martin recently referred to it as a “Great Bifurcation.”

That creates both enormous opportunities and sizable risks.

Just consider the following: The S&P 500 is down about 2% year-to-date. Not terrible. Yet if you look at the performance of the 11 S&P 500 sectors, you see an unbelievable dispersion of returns.

Technology is rocking and rolling. It’s up more than 15%!

Check out this chart:

Consumer discretionary is up more than 12% — skewed by Amazon.com (Nasdaq: AMZN, Rated “C+”), which accounts for a whopping 25% of the sector’s weighting.

Communications services are up 4%. Again, that’s skewed by a handful of tech stocks. Facebook (NYSE: FB, Rated “B-”) and the two classes of Alphabet (Nasdaq: GOOGL and GOOG, Rated “B” and “B”) shares account for 45% of the sector.

Meanwhile, every sector that is NOT heavily influenced by a handful of mega-cap tech stocks is in the red for the year.

Materials are off 5%. Real estate is down 11%. Industrials are losing 16%. Financials are shedding 23%. And energy? It’s down 41%. Yikes!

Frankly, this isn’t the kind of broad-based, rising tide, wide-ranging advance you see during powerful bull markets.

It’s much narrower, more worrisome behavior that I’ve seen a handful of times in my career — most notably around the peak of the Dot-Com Bubble in 1999-2000.

Does that guarantee we’re on the cusp of a mega wipeout in equities? No. But it does confirm you want to keep treading more carefully, using the “Safe Money” approach I advocate.

As you know, it’s one focused on income-producing investments, alternative assets like precious metals and mining shares, higher levels of cash and other important, prudent steps to control your risk.

Another prudent step to success is keeping yourself informed. In this time of volatility, knowledge is going to be your best weapon. And it’s ours, too. That’s why the Weiss Ratings team wants to hear from you.

We want to better understand the challenges you’ve faced in this “Tale of Two Markets”.

We want to hear from you how this crisis has impacted your portfolio, your family, your daily life.

We want to hear about your challenges, and what’s keeping you up at night.

But most of all, we want to address those challenges in the most direct way possible.

Until next time,

Mike Larson