Why ‘Just Beating the Market’ Is a Losing Strategy This Year

The stock market is more divided than ever, with a 70-point dispersion between winners and losers. Simply beating the market won’t cut it this year—!

🚀 In this episode of The Money Runner, we break down: 

✅ Why the biggest stocks are struggling & what it means for YOU 📉 

✅ How to escape “dead money” and let your profits run 🚀 Don't settle for average. 

Disclosure: "At the time of this article I currently hold shares in some of the companies mentioned as part of investment portfolios in funds I manage for Belpointe. Additionally, I may discuss other securities that are under consideration for future investment; however, discussing these securities is not a recommendation to buy, sell, or hold. My mention of these securities reflects my personal opinion and analysis at this moment and may change without notice. Please remember that all investments involve risks, including the possible loss of principal."

Transcript

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Beating the market. Not enough. Not this year. Not with dispersion at 70 percentage points. That's the widest we've seen outside of a recession since 2007. Why? I guess there's lots of reasons, but at the top of anyone's list has to be the weak performance from the market's biggest stocks by market cap. With Apple, Microsoft, Tesla and Alphabet all in the water year to date, the opportunity set for investors to outperform actually increases. We are staring at the widest stock dispersion in nearly two decades. Winners and losers. The gap is massive. If you're in the right names, you’re killing it in the wrong ones, dead money. And trust me, I've owned both this year. Cut your losses and let your profits run. Don't let your biases control what stocks or sectors you should own. This year could turn those theories upside down. Welcome to the Money Runner. I'm David Nelson. For too long, investors got lazy. Buy the index, grab some Mag seven. Call it a day. Look, there's nothing wrong with using the index for large portions of your funds. But every now and then, an opportunity comes along. Like the present equity concentration is so extreme that even a minor tilt away from some of these mega-cap giants has enormous implications for equity returns. It doesn't even matter if a couple of them find their footing. Meta is certainly a standout winner, and Nvidia has finally crawled back into the Green Year to date. Even Apple is showing signs of life. But if as a group, the top of the market does not outperform, then the opportunity in front of us gets more real. The bigger question Does it last? And if it does, for how long? Let's go through a couple of examples. Here's two on opposite ends of the spectrum Trade Desk. An advertising technology company in the communications sector missed on the top line for the first time in 33 quarters. The punishment was severe opening down more than 30%. On the other side, Applovin, one of the best performing stocks last year, gapped 24% to the upside on the heels of their report last week hasn't looked back. This one hurts because I took profits in Applovin last year and early this year. It's a lesson in how volatility can shake you out of a good investment subject for another pod. We are probably two thirds of the way through the earnings season. Only two of the Mag seven stocks traded higher on earnings. The Kahuna Nvidia poster child of the A.I. trade reports. Next week, we'll see what happens. Price momentum. Which market has the MO? Investors always chase price momentum and at the index level that is not here for weeks. Markets in Europe have traded higher on the increasing prospects to an end of the war in Ukraine. Or, at a minimum, a ceasefire. Many oppose how the deal is coming about, and certainly European leaders are all screaming that, at least so far, they aren't inside the room. However, stocks don't have political biases. They follow the money and are convinced that an end to the hostilities means increased revenue and earnings across the European Industrial Complex. The numbers don't lie. Year to date, the MSCI EAFE Index is up 8.22%. That's two times the total return of the S&P 500. Challenges. Every market has them. Here in the States, the inflation genie is not back in the bottle. Investors know it and so does Fed Chairman Jay Powell. What does that mean for us? Well, for starters, get it out of your head that you're going to see rate cuts any time soon. And if they do come, it will be for all the wrong reasons. Either there's been a significant downturn in the economy or the Fed breaks something in the banking sector. At a minimum, equity investors have to factor in the possibility, if not probability, of a rate hike. If inflation numbers don't start to come down soon, futures markets will shift from predicting the next cut to the next hike. Jay may imply the Fed is nowhere near considering a hike, but you can bet dollars to donuts that he’s not going to go down as the next Alan Burns and get inflation wrong two times on his watch. As a reminder, Mr. Burns was Fed chairman from 1970 to 1978, and he was often criticized for cutting interest rates too soon in response to economic slowdowns failing to control inflation effectively. Challenge number two the deficit. The U.S. budget deficit presents both a challenge and opportunity for President Trump. Look, inheriting a budget deficit that is 7% of GDP, not a great hand. The long end of the yield curve already speaks to the concerns of a widening deficit, and any deterioration will force ten year yields even higher. If, however, and it's a big if over the next four years, administration policy can shift the trajectory so that bond investors can visualize a return to a deficit that is 3% of GDP. That would go a long way toward increased confidence, keeping long rates in check. You can't have a conversation about deficits without talking about DOGE. Doge is one of the more controversial efforts by President Trump. The Department of Government Efficiency has sparked both praise and outrage. Elon Musk, CEO of Tesla Space X, x and yes, the richest man in the world. Heads up doge and has made the claim that he can cut the deficit by half. Now, while I'm certain that's an exaggeration. Anything that approaches even a fraction of that number is a step in the right direction. The controversy over doge and its cost cutting techniques not surprising. One man's waste and fraud are another’s source of income. We can debate whether there are those in government with too much power or even that all. This is happening too fast. But what isn't up for debate is that this has to happen. The United States is no longer in a position to waste money or keep government employee levels at anything above what is absolutely necessary to serve the people. There are approximately 4000 federal agencies. Many have duplicative or overlapping services. Some continue to survive, even though their mandate and function no longer exists. They all have two things in common. They have a budget and want a bigger budget next year. Now, the agency with the largest budget now approaching 1 trillion is, of course, the Department of Defense. The DOD has repeatedly failed to complete a successful audit. To their credit, the Defense Department has already offered up weapons systems and other cost cuts in advance of those doing their analysis. Many of these systems likely have been carried at the request of members of Congress on both sides of the aisle. Where the cut of a program or base could impact both jobs and the economy of a congressional district. Here's where I come out. Our military programs should be based on national security needs, not political interests. We can no longer justify funding systems solely because they provide jobs in certain districts. Every defense dollar must go toward programs that effectively protect the United States from threats both foreign and domestic. Some final thoughts before we close out the show. We're in a market unlike any other in recent memory. The winners are pulling away from the losers, and that gap is growing. We are in a news cycle that does not sleep so investors who recognize these changes in both policy and market dynamics will benefit in a big way. That's it for this week. Thanks for joining. And if you want to learn more about the money runner go to my substack site. dcnelson123@substack.com. I'm David Nelson and this is The Money Runner.