Markets “In a Nutshell” for October 16, 2023
Investment Week at a Glance
Stocks finished up for the week. The Dow Jones Industrial Average rose 0.80%, the S&P 500 was up 0.40%, and the NASDAQ fell 0.20%. Foreign stocks (MSCI EAFE) were up, rising 2.40%. Bond prices were up for the week, with the 10-year U.S. Treasury ending the week at 4.62%. (Data source: Wall Street Journal)
Markets Navigate Through Geopolitical Risk
With the tragic events that took place in Israel the past week, markets have had to price in another risk. Historically markets can navigate through these geopolitical risks rather easily as they do not have much impact on US markets. The big risk in this case may be the price of oil increasing if the conflict grows across the Middle East. Oil jumped more than 4% last Monday from the news as fears that supply could be disrupted. If we look through some of the major geopolitical events, markets are typically higher in the year following the event by 7%. Markets will pay close attention to see if the conflict escalates in the coming weeks as Israel prepares their response to the attack.
Concentration in the S&P 500
The S&P 500 is now the most concentrated it has ever been in the 10 largest stocks. These 10 stocks now account for over 30% of the index and Apple’s market cap alone is over 1.5x that of the entire energy sector. This is one reason why it is important to be diversified, although these companies have performed well this year, there is always a chance a couple could begin to cool off which would drag the whole index down. There is also the chance that the other companies begin to “catch up” to the highflyers as they could tread water for some time. As investors diversify their holdings, their risk can decrease as they are typically not as concentrated as the S&P 500 currently is. As with everything, certain stocks, styles, and sectors will not become as attractive, and people will move to other places within the market.
How much have oil prices increased this year? (Scroll Down for Answer)
Have a Great Week!
2. 9%. Oil prices increased by almost 6% just last week but are only up 9% for the whole year. We could see this number increase depending on the outcome of the middle east conflict.