we discussed how it seemed as if Santa arrived on Christmas Eve, pushing the markets back above the important 50-DMA. However, by the end of the year, it seemed investors were naughty this year and received awith markets selling off back toward recent lows. One important note was that momentum and relative strength remained weak, keeping selling pressure intact.
Since 1900, the stock market has “averaged” an 8% annualized rate of return. However, this does NOT mean the market returns 8% every year. As we discussed recently, several key facts about markets should be understood.: Historically, the stock market increases about 73% of the time. The other 27% of the time, market corrections reverse the excesses of previous advances. The table below shows the dispersion of returns over time.
Speaking of the “have-nots,” the 60/40 allocation lagged far behind the S&P 500 index on a performance basis as bonds struggled with “sticky inflation” and continued to push to increase portfolio risk as investors chased asset prices higher. That surge of capital into ETFs contributed to the outsized performance of large capitalization companies, primarily the “Magnificent 7,” relative to the rest of the index, as shown above. This happens because most of these passive ETFs are market capitalization-weighted.
“We see surging volume in leveraged single-stock ETFs. An example of such an ETF is Granite Shares NVDL. The ETF offers a 2x leveraged holding of Nvidia shares. If Nvidia falls by 3%, the ETF will decline by 6%. Conversely, if Nvidia rises by 5%, the ETF will climb 10%. Accordingly, leveraged single-stock ETFs can be incredibly speculative. Furthermore, the massive surge in volume in such ETFs, as we share below, further confirms speculative behaviors are growing.
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