The S&P 500 and tech-heavy Nasdaq hit new record highs Monday morning as stocks continue to ride optimism over President Joe Biden’s newly agreed-upon infrastructure framework, but experts are warning investors’ increasingly bullish expectations don’t measure up to reality.
Shortly after the market open, the S&P ticked up to 4,288 points, adding to a Friday closing high before slightly paring back gains, while the Nasdaq, which is also fresh off a closing peak, jumped 0.6% to 14,460 points.
Meanwhile, the recently underperforming Dow Jones Industrial Average, which comprises a basket of legacy corporations like Goldman Sachs, Nike and Walmart, fell 0.4%, pushing it down about 1.5% from its latest high in May.
Once again, tech stocks like Nvidia, Tesla and Applied Materials led the market Monday—jumping 5%, 2.5% and 2%, respectively.
On the other hand, travel and energy stocks headed up the market’s losses as investors worried over rapidly spreading Covid-19 variants, with Devon Energy, American Airlines and Carnival Cruise Lines falling 4.4%, 4.5% and 5.4%.
“Investor expectations are way out of whack with reality,” Michael Batnick, the director of research at Ritholtz Wealth Management, wrote in a weekend note, citing Natixis’ annual survey of 8,550 individual investors around the world. Those investors said they expect average U.S. stock returns of 17.5% over the long term. “The S&P 500 has returned 10.4% over the long term,” Batnick says. “The idea that we’re going to get 17% real, after getting 17% nominal over the last five years, is nothing short of absurd.”
6.7%. That’s the average long-term return financial professionals say U.S. investors should expect—less than half what individuals say they expect.
What To Watch For
A slew of economic data is due out in the coming weeks. The June jobs report is slated for release Friday, while the Federal Reserve will release minutes from its next Federal Open Market Committee meeting next Wednesday. On Tuesday, July 13, second-quarter earnings season gets started with results from Goldman Sachs, JP Morgan and PepsiCo.
Technology stocks led the market’s rally last year but underperformed this spring amid accelerating economic growth and the threat of rising interest rates. Those fears spurred a stock market rotation away from growth stocks (like those in tech) to cyclical and value-leaning slices of the market that struggled during the pandemic (like energy and financials). In recent weeks, however, Federal Reserve officials have made it clear the Fed isn’t looking to hike interest rates anytime soon, and that’s helped tech stocks reclaim their market dominance. Last week, the Nasdaq started outperforming the Dow this year, jumping 13.8% compared to the Dow’s 13.5% return.