Last week, retail sales came in surprisingly strong, which suggests that the US consumer is not slowing down as much as the Federal Reserve would like. This implies that the “higher for longer” theme will likely persist until inflation lowers to the Fed’s 2% target. One important development in markets recently is the difference between the seven biggest companies in the S&P500 compared to the rest of the companies in the index. At the beginning of 2023, those seven companies had a P/E ratio of around 29 each. Today, that number is nearing 50. The bottom line is that returns this year in the S&P500 have been driven almost entirely by seven stocks, and these stocks have become more and more overvalued.
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