Weekend Reading – Where do U.S. stocks go from here?

Weekend Reading – Where do U.S. stocks go from here?

Welcome to a new Weekend Reading edition about where U.S. stocks go from here after my Canadian home bias edition.

Weekend Reading – Canadian home bias edition

Weekend Reading – Where do U.S. stocks go from here?

Before a take on that theme, another thank you and shoutout back to Rob Carrick (long-time fan of this site) and personal finance journalist at The Globe and Mail who highlighted a recent post of mine as part of his newsletter and agreed with my conclusion – for everyone working hard, saving and investing without any workplace pension to rely on:

“Kudos for coming to a useful conclusion: “Any couple in their mid-60s that has greater than $1-million portfolio value has set themselves up well for retirement even without any workplace pensions.”

Let’s face it: $1-million saved and invested for retirement is still a lot of money!!

Can I retire with $1 million in our RRSPs?

You can follow Rob’s collection of personal finance and investing articles every week like I do from that link above – well worth the subscription in my opinion. 

Where do U.S. stocks go from here?

Likely higher longer-term but the U.S. stock market seems rather frothy to me right now. 

As of January 2024, I thought U.S. stocks would move higher in 2024, just not this much YTD?!

Recall, here are some 2024 predictions I made in a fun Canadian Money Forum contest and what experts were predicting from the S&P 500 (at that time) for later this year: link.

Fundstrat’s Tom Lee is typically very bullish in his predictions. His S&P 500 price target of 5,200 earlier this year represented gains could be around 14%. That I agreed with. From that article:

“Lee said most of the gains are likely to come in the second half of the year as the Federal Reserve shifts from an “inflation war” to “business cycle management.” That means interest rate cuts are more likely next year.”

Fueled by AI, Tom Lee in another article/media release mentioned this:

“@fundstrat’s Tom Lee says the S&P 500 will hit 15,000 by 2030. “This will be the 3rd time that stocks entered a cycle where annual returns compound at high teens.” $SPX pic.twitter.com/31vzaEaGpo” – Last Call (@LastCallCNBC) June 26, 2024

Wow.

How is that for irrational exhuberance?!

Lee’s prediction is in stark contrast to other recent S&P 500 forecasts I’ve seen. I’ve read reports about an “everything bubble” beyond tech and AI and as such, investors can and should strongly consider a healthy cash buffer and/or bonds as needed. 

Wall Street’s enthusiasm for AI seems to mirror the hype around internet stocks in the 1990s (when I was getting into investing in fact). For older readers and investors, you might recall the NASDAQ Composite lost about 77% peak-to-trough in the early 2000s. That is not a typo.

The S&P 500 has been a huge driver of returns for over a decade now…but a “lost decade” has happened before. I’m trying to not let any recency bias affect my long-term plan with my mix of stocks and ETFs. 

Periods like the current one we’re in are a HUGE reminder to me why stocks have historically produced the attractive investment returns they have. While staying the investing course is easy when times are good, including touting the U.S. market, I believe it will be more difficult for investors to be cheerleading U.S. stocks when they fall in value.

I continue to believe it’s “impossible” to predict when any stock market bubble might burst, let alone how much might be lost out of the balloon when it does pop. That said, I prepare and expect stock market declines to happen. We should probably all prepare and expect every 5-10 years for a stock market decline  that is 20% or more that lasts for an extended period of time; at least a year or so. 

History says so. Reference:

How long do stock market corrections last?

Whether the S&P 500 index goes to 6,500 or 4,500 by year-end, I will stick with my plan.

I have no plans to sell any stocks near-term nor add bonds or GICs to my portfolio. I mentioned as much in How We Invest.

How We Invest

I’m happy to learn about your thoughts on where the U.S. market is headed, higher, lower, or a flatline near-term. Your guess along with the experts is likely as good as mine! 🙂

Have a great weekend and enjoy these reads…

Mark

Weekend Reading – Where do U.S. stocks go from here?

When it comes to market valuation(s), I found this site, lots of interesting charts including this one. 

S&P500 Mean Reversion Model July 2024

Source: https://www.currentmarketvaluation.com/

Funny but true stuff from @DividendGrowth related to Bill Gates net worth. 

“Bill Gates would be worth $1.5 Trillion today if he had never sold his Microsoft shares He became friends with Warren Buffett however and started to diversify his portfolio He’s worth only $134 Billion today Lesson: Hindsight is always 20:20.”

Source: https://x.com/DividendGrowth/status/1809194263348961644

Well, he’s doing “OK” to say the least with lots of philanthropy. We own some of his key holdings just not all of them nor that much! Ha. 

Bill Gates Portfolio

Source: https://x.com/CervKnowledge/status/1752009773661233338

Pretty impressive RESP balance and how to get there from Settling Nomad, via an all-in-one ETF.

SettlingNomad RESP

Source: https://x.com/SettlingNomads/status/1808899051317797088

One great path to wealth-building is creating and growing multiple sources of income. Dividend Daddy is killing it with his approach.

“Adding all sources of income for February 2024 (dividends, interest, and real estate income), my gross income for January was $11,722.29. This amount is excluding income from my day job which would easily more than double this amount.”

If you’re looking for a Canadian growth stock, consider Couche-Tard (ATD), including stocks that are buying back shares to increase shareholder value. Share buybacks have pros and cons just like dividends and other forms of growing company value. Good insights on from @BarrySchwartzBW and Ernest from his team here. 

Reader question of the week (adapted slightly for the site):

Mark, I appreciated your Financial Independence Update this spring. So, why are you keeping cash on the sidelines? Can you provide more details how you organize things?

Sure. A reminder we organize our cash cushion this way:

  1. Taxable accounts– cash is available to fund any spending beyond our standing emergency fund (like an international trip this fall),
  2. TFSAs– cash is available to be strategic to buy more equities when those assets go on sale, and
  3. RRSPs – cash/cash equivalents is becoming a home to fund one if not two-years’ worth upcoming withdrawals without touching the portfolio. (We have Year 1 ready for 2025, if needed.)
  4. Corporation– we keep a growing cash position inside my corporation account, just in case.

We keep our emergency fund in a higher interest savings account. That way, at least our emergency fund is not a total loser to inflation. Our emergency fund is just that. Extra cash beyond that fund is set aside because we need to pay for trips/flights, etc. and we don’t like borrowing money for a vacation. 🙂 

When it comes to TFSAs, while we’re mostly invested in equities, there is some cash there as well. I am likely to make another purchase of low-cost XAW this fall inside those accounts before I make any 2025 TFSA contributions. 

Our RRSPs have a bit of cash / cash equivalents now, and we’re adding more over time since all DRIPs have been turned off inside our RRSPs – all dividends and distributions from our Canadian stocks, U.S. stocks and low-cost ETFs are accumulating as cash. Once some cash builds up, we’ll convert that cash periodically to a money market fund earning >4% inside our RRSPs since we want at least one if not two-years’ worth of upcoming RRSP withdrawals to be available without touching the portfolio.

Finally, I continue to grow our cash position inside my corporation account and I will continue to do so into early 2025. 

Again, I believe keeping cash or cash equivalents is a huge benefit to help manage market volatility at any age but that’s especially important to us as we age. Your mileage may vary. 🙂

Tiny Thoughts:

“A lot of mistakes come from copying people playing a different game than you.” – @FarnamStreet

Have a great weekend!

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

18 Responses to "Weekend Reading – Where do U.S. stocks go from here?"

  1. Thanks Mark for your great posts as usual. I have more faith in US stocks compared to Canadian. Look at the TSX vs S&P and the Nasdaq. The returns to date say it all. Now that we are on the verge of AI revolution (if not already in), I believe (although I could be off) that the US tech sector would perform very well in the months and years to come.
    All the best to you all.

    Reply
    1. Thanks, Ken.

      Yes, S&P 500 and NASDAQ both been flying thanks largely to Mag 7. and tech stocks.

      I will continue to own QQQ in particular for tech growth and what QQQ doesn’t have, then XAW does.

      On a related note, this AI revolution is not going to come free – so energy will play a big role: O&G, electricity, solar, alternative energy sources. Agreed?

      I will continue to add to XAW as I often mention on this site over the coming years as my “when in doubt” holding beyond Canadian stocks.

      How are things with you? Have a great summer.
      Mark

      Reply
  2. Lloyd (64, retired at 55) · Edit

    With age and life events I’ve moved away from any kind of FOMO. Having said that, I am finding myself more concerned about the global (and domestic for that matter) political events that seem to be escalating in what I perceive as a negative direction. Not sure how this works out in the end, but I fear it will not be positive in any economy and thus markets. The States of America will not likely be immune and might have a reckoning sooner than later.

    Or it could just be that I’m old and grumpy. 🙂

    Reply
    1. That’s my thinking as well….S&P 500 and U.S. market is “due” for a correction at some point of >10%. I have no idea when that might happen but thinking it will at some point since history says it will.

      Political events brewing in the U.S. make me very nervous and downright sad about any future….

      Mark

      Reply
  3. I am definitely reluctant to go all in on the US market right now because I’m waiting for the crash…that doesn’t happen! I still find XAW to be an interesting choice because the MER is higher – why not buy XEF, XEC and XUU in similar proportions to save the fee? As cash rolls in, you can purchase more and rebalance (say every quarter) or leave the Cash like you are doing now – for investing later or to cash out and live off of.

    I also listened to an interesting talk by JL Collins a while back – Simple Path to Wealth – about investing in emerging markets. His take is that they don’t always have the same rigor and scrutiny that other countries do and could be misleading about how well they are doing. There is a level of “accounting” risk associated with some of these companies. Perhaps he is misguided because the US isn’t perfect either – Enron anyone! His second point is that US companies are already global – they sell worldwide and are already tapping into markets outside of NA and Europe. I can definitely buy that argument. I had some XEC but have sold most of it, because I am not convinced some of the countries are managing their businesses the way we expect. I am instead buying XUU and XEF directly. Curious about your thoughts on this take!

    Reply
    1. Nice to hear from you again, Sandra.

      Ya, U.S. market seems high now but I will continue to invest in it, add away over time.

      I buy XAW for simplicity to be honest, to avoid USD $$ to CDN $$ conversions and I can “set and forget” part of my portfolio.

      RRSPs have no DRIPs turned on (on my FAQs page) so as cash rolls in, I buy more once or twice per year. That’s it.

      https://www.myownadvisor.ca/faqs/

      JL Collins and other folks, I find, have a heavy bias to U.S. stocks. Yes, U.S. markets have been amazing long-term but they have years (many, historically) of underperformance. There has literally been a “Lost Decade” of U.S. stocks that folks don’t talk about but all good…everyone has a different path/risk tolerance/mental accounting to live by. I have my own for sure.

      Many Canadian stocks are also global as well and that is not talked about enough either.

      XUU and XEF are both outstanding funds respectively. No concerns with either. I recall both are on my Best ETFs page.
      https://www.myownadvisor.ca/etfs/

      Pick and choose any of those low-cost diversified ETFs as you wish!

      All my best,
      Mark

      Reply
  4. Hi Mark,

    Great post as usual. Thanks again for the shout out.

    With respect to your Reader Question, while I don’t know the total amount of cash you’re holding or projecting to hold, it seems like potentially a lot of cash.

    I do have some cash on the side in WealthSimple’s High Interest Account earning 5% (I’m a “Generation” client hence the higher amount of interest earned). I feel pretty good about the rate of return on this cash all things considered.

    I keep adding cash every month, about $2,000 give or take. I see this fund as a “large expenses fund” or a “unexpected large expense(s)” fund. I can fund my day to day life now including travel from my employment salary alone, not to mention rental income + dividends (which I mainly reinvest or put in my WealthSimple High Interest cash Account.

    In early retirement, assuming no further part-time income (unlikely), just from dividends alone, I can more than fund my lifestyle. So I don’t see a need for a lot of cash on the sidelines. I guess in theory if all my dividend stocks cut their dividends to zero, cash would be useful, but this scenario, although possible, is very unlikely.

    Am I missing something?

    Reply
    1. Hey DD,

      Thanks very much.

      Continued success back, you are killing it with your income and wealth-building = my goodness.

      Well, it’s not as much as you and others think but maybe it is?

      Without getting into personal / detailed numbers I can share this related to my post:

      1. Taxable = > $10k emergency fund, always, invested in a higher interest savings account / ISA.

      1b. Taxable = we keep $5k-10k there for a savings fund / travel fund / growing future contributions to TFSA in the winter for Jan. 1, extra money for day-trips for wine tours, overnight stays at local resorts for getaways every few months, other near-term spending, etc.

      2. TFSAs = a few $k only but always put once in a while…likely to add more XAW in 2025 and trying to save up $$ for that now. See 1b.

      3. RRSPs = a few $k for sure 🙂 – since I want to be able to use $$ for withdrawals without selling any stocks, any ETFs, etc. for almost a year of basic expenses and might want that for 2025 and definitely 2026…

      4. Corporation = will be using withdrawals in the coming years for living expenses/living off dividends.

      Ultimately, in the coming years funding our lifestyle = A. part-time work + B. “living off dividends” = work + dividend income > expenses without selling assets in the first 5 years or so of semi-retirement.

      In those years, we won’t be touching capital inside our taxable accounts, we won’t be touching TFSAs x2, we will be too young to tap CPP or OAS, I will be too young to touch my pension and my wife will be too young to tap her DC pension. We’ll have all those income streams I just mentioned in our 60s+ coming online then, health willing.

      I see cash / cash equivalents / high interest savings accounts for the sum of our emergency fund + near-term savings + future RRSP withdrawals. For the most part all other cash is put to work to generate higher dividend income over time.

      I hope that helps clarify a bit without giving away every dollar. Ha.
      Mark

      Reply
        1. Thanks. I’m not holding “lots of cash” but rather cash equivalents too – things that generate 4%+ yield right now via cash equivalent ETFs, money market funds, higher interest savings accounts, etc.

          Reply
  5. Mark, the only predictions I’ve ever done or been concerned about are where the stocks and funds will be 5 and 10 years out. Nobody really knows where stocks are going short term. Holding good companies and good dividend paying companies long term has worked well for me. Someone once said holding stocks is like holding a bar of soap. The more you trade or use the soap the less there is Besides I’m lazy. Once I put in the research to buy something I’m prepared to keep it and trust the work I’ve done. I’m moving most of my remaining US stocks into VOO for growth and SCHD for some US dividends. Thanks Mark for providing a great forum for investors to use to discuss thoughts and what works for them. It’s really a good place to learn. Cheers.

    Reply
    1. Ya, and no need for predictions really when all your income needs are met.

      I recall you own XIU, non-reg? = which should provide 6-7% mutli-decade returns for the years ahead.
      If you own VOO or SCHD = both should provide 6-7% returns for decades to come.

      Of course there will be bad investing years, or multiple years of poor returns but that’s the price of admissions for investing in stocks.

      I’m going to keep XAW + QQQ as my two main U.S-related ETFs and simply add to XAW as I get older including 2025 TFSA room. Saving for that now.

      I will continue to own a few U.S. stocks for defensive stuff and growth long-term like BRK.B, BLK, WM, WMT and NEE. I will eventually sell those U.S. stocks over the coming decades to help fund our lifestyle and drawdown the RRSP/RRIF portfolio. I might as well spend some of the money we’ve saved. 🙂

      No changes to my 25 or so CDN stocks either in the near-term, only going to buy more!! LOL.

      Have a great weekend and continued investing success to you.
      Mark

      Reply
  6. Great read as always, Mark. I wonder if we’re not going into a commodity strong decade. I’m adding REMX while it’s at an all time low lol

    Reply
  7. Let’s face it Mark, when people talk about the U.S. market, what they are really talking about is the “magnificent seven”. Right or wrong, some of us actually avoid this branch of the market like the plague. We’re all old enough and know our market history to have seen this all play out before, whether with the Go-go stocks of the late 1960’s, the nifty fifty from 1973 to 1974 or the tech crash of the early 2000’s and the continued U.S. bear market to late 2009.

    Take out the magnificent seven from the market, and from what I’ve read, I see nothing special performance wise about the S&P 500.

    I can never remember anyone saying Ben Graham bought IBM or anything like it, in his day.

    Reply
    1. I hear ya. Great point.

      “Take out the magnificent seven from the market, and from what I’ve read, I see nothing special performance wise about the S&P 500.”
      Tech is approaching 35% of the index. Very concentrated.

      Makes me wonder what’s next for the S&P 500 without the extreme focus on tech??

      Things will revert at some point, I just don’t know when…any predictions?
      Mark

      Reply
      1. Sorry Mark. I am not very good at predicting a foggy future.

        My motto is, “have extra cash, will invest”.

        Once a year into our XDG in the TFSA’s. Only 5.5% allocation to information technology in that ETF.

        Our much larger taxable portfolio of individual Canadian dividend paying, sector diversified stocks get a cash infusion usually once a month on average. Mostly, into the lagging stocks. No technology in there either, just whatever technology is used in the day to day running of our companies.

        ——————————————

        With summer here and the LCBO on strike, may have to revert to drinking near beers. Not much I like for alcoholic dark beer in the supermarkets. At least you’re a hop skip and a jump from the Quebec border.

        Reply
        1. Ya, my crystal ball is always cloudy here too…I just like making predictions just for fun.

          XDG is not a bad fund for sure… I like QQQ for my RRSP and LIRA for tech. I will likely continue to hold that for decades to come along with XAW as my main ETFs.

          For the CDN side, since like you I own a number of CDN stocks in our taxable account, likely to add to TOU or WCP later this year but we’ll see.

          I don’t mind Partake and Collective Arts for near-beers. I had a few yesterday. Yes, I can bike to Quebec for SAQ wine as needed which is great.

          Have a great weekend and always nice to chat investing with you.
          Mark

          Reply

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