By Vic Lederman, editorial director, Chaikin Analytics
Folks, we're in a very peculiar market...
The broad market S&P 500 Index is soaring. It's up 15% so far this year.
And the tech-heavy Nasdaq 100 Index is also on the move. It has climbed about 19% in 2024 so far.
Those are impressive gains. But as Chaikin Analytics founder Marc Chaikin and I have both mentioned recently, that doesn't mean it's safe to put money to work in any big-name stock. It's not that simple.
McDonald's (MCD) is the perfect example...
Back in December, I wrote that the "old burgers aren't this stock's only problem." I explained that McDonald's was struggling despite an attempt at a revamp.
You might remember that the company recently refreshed its buns. It made other changes to its menu aimed at upping the perceived quality of its products.
Unfortunately, it coupled that with massive price increases. And as I said in February, consumers are fed up.
And now, the company's stock has continued to struggle... despite the strong overall market.
Even big-name tech stocks aren't sure bets in today's market...
In fact, one of the most widely talked-about stocks in this industry hasn't made a new high in an astounding 31 months. And it's one of the so-called "Magnificent Seven" giants...
I'm talking about electric-car king Tesla (TSLA). And considering all the hype around the Magnificent Seven in the financial media, that might be surprising to hear.
Today, let's dig a bit deeper. And we'll use McDonald's and Tesla as examples of why you can't just buy big names and hope for the best – even in a market that has been roaring higher...You would think that McDonald's would be a safe bet. Consumers at the bottom end of the economic ladder have been struggling.
Inflation is down from the big highs back in June 2022. But it has still remained "sticky." And you would expect that to push folks with tight budgets to the cheapest options – like Big Macs from McDonald's.
But the company miscalculated... big time. The chart is about as extreme as it gets for a blue-chip business like McDonald's...
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Since I first discussed McDonald's back on December 4, the S&P 500 has climbed a staggering 21%. And over that same time frame, MCD shares are down 13%.
This is a wipeout... the kind that could have major implications for an investor that was overallocated to this stock.
But that's the market we're in. Select stocks are soaring. And the concentration at the top is at historic levels.
According to Goldman Sachs, the market has surpassed the concentration levels we saw in the 1990s. Put simply, something strange is going on right now.
So what does this mean for investors?
There are two key takeaways...
First, it's not enough to be a big name in this market. Name recognition alone doesn't mean that a stock is going to soar. That means investors need to be wary of big names that are faltering.
McDonald's makes this obvious. The company should be soaring along with the market... but it's not.
In fact, it currently earns a "bearish" rating from the Power Gauge. And that means our system sees more pain ahead.
Beyond that, the example with McDonald's also means that investors need to be deliberate about the stocks they put money to work in. Some stocks are soaring... while others are crumbling. And that's happening amid a strong overall market.
Tesla is the perfect example of another big name that's struggling...
Before we go on, remember that the Magnificent Seven are the mega-cap tech stocks that replaced Wall Street's previous favorite acronym – "FAANG."
Aside from Tesla, the rest of the group includes Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Meta Platforms (META), Microsoft (MSFT), and Nvidia (NVDA).
These stocks also dominated the market last year. Their average gain was an astounding 111% in 2023. And Tesla was one of three in the group that soared more than 100%.
So it might be surprising to hear that the stock hasn't made a new high in more than two and a half years. But take a look at the chart...
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That's right, Tesla may be the most talked-about name in the automotive industry these days. And it's the clear leader in American electric-car sales.
But over the long term, its share price is suffering. The stock hit an all-time high in November 2021 at about $410 per share. Today, TSLA shares trade for around $240.
And in the first panel below the price chart, you'll notice our proprietary measure of the stock's relative strength versus the S&P 500. As you can see, this measure is sharply in the red.
That means the stock has been underperforming the broad market. In fact, it's down 7% this year.
Not surprisingly, when we put it all together, Tesla earns a "neutral minus" rating from the Power Gauge today. And as you can see in the bottom panel below the chart, the stock has spent most of this year in "bearish" or worse territory.
Folks, this is a big deal...
The market is highly concentrated right now. And investors are focusing on the names at the top.
That makes the takeaway clear...
Despite the overall market's surge in 2024, now is not the time to simply buy up the big names and hope for the best.
Today's market demands a conscious and active approach.
That means that now, more than ever, picking the right stocks is paramount. And knowing what to do when that market concentration shifts could be the difference between making huge returns... or seeing your portfolio wither.
