Motley Fool Money – Episode: The Year of Concentration, Crypto, China Release Date: December 13, 2024
Hosts: Dylan Lewis, Ricky Mulvey, Mary Long
Guests: Matt Argersinger, Bill Mann
Description: An in-depth analysis of the 2024 financial year, exploring market performance, sector winners and losers, overlooked financial events, cryptocurrency developments, and holiday shopping trends.

1. Annual Market Recap

Dylan Lewis opens the discussion with a snapshot of the 2024 market performance:

• S&P 500: Up 27% YTD
• Nasdaq: Up 35% YTD
• Dow Jones: Up 16% YTD

Matt Argersinger emphasizes the exceptional growth over the past two years, highlighting:

“The NASDAQ 100 since the start of 2023 is up nearly 100%. The S&P 500 is up more than 60%. It’s been a remarkable two-year run for the market.”
[01:23]

He also references Yardeni Research, noting current high valuations:

“The S&P 500 is trading at a P/E multiple of 22 for 2025 earnings, the highest since 1999. Yardeni's Mega Cap 8 companies are averaging a P/E multiple of 31.”
[02:11]

Bill Mann adds insight into market concentration:

“The Magnificent Seven represents about 70% of the trading volumes on Interactive Brokers’ platform, indicating a risk-on environment.”
[02:44]

2. Market Concentration and Valuations

The hosts discuss the significant concentration of market capitalization within a few large U.S. companies:

Matt Argersinger brings up Rukia Sharma of Rockefeller Capital Management:

“US companies account for roughly 70% of the global market cap, far exceeding America’s 20-27% share of the global economy and 4% of the global population.”
[03:47]

He suggests expanding investment horizons beyond the U.S.:

“Foolish investors would be well served to start looking a little bit outside the US for some opportunities.”
[04:00]

Bill Mann cautions against mean reversion investing but acknowledges the dominance of U.S. firms:

“The largest 10 companies in the world by market cap are all in the United States. This is not by accident.”
[05:54]

3. Winners and Losers of 2024

Winners:

• Energy Sector Dominance: Five out of the top 10 S&P 500 performers have energy exposure.

  • Vistra Corp: Ranked #2
  • GE Vernova: Ranked #5
  • Texas Pacific Land Corp: Ranked #7
  • Targa Resources & Constellation Energy: Also in the top 10
  • Bill Mann explains the resurgence of energy investments as foundational for advancements in AI and other technologies.

  “Companies that have been ignored for a long time are now essential because our future requires enormous amounts of electricity and power.”
  [07:57]

• Specific High Performers:

  • Nvidia: Up 170%
  • Palantir: Top performer
  • Axon: Top five performer

Notable Quote on Energy Sector:

“If you sold Nvidia, you could buy the entire energy sector and still have money left over for dividends from companies like Walmart, Coca-Cola, and JP Morgan.”
[08:57]

Losers:

• Real Estate: Continued struggles with REITs lagging the broader market.

  • Vanguard Real Estate ETF: Down ~19% from its peak.

  “Real estate is one of the few sectors still down from its losses in the 2022 bear market.”
  [10:02]

• Casual Dining Restaurants: Significant bankruptcies among low-cost full-service restaurants.

  • Red Lobster, TGI Fridays, Chili's: All faced financial distress.

  “Low-cost full-service restaurants are in a great deal of distress due to a trade-down from these establishments in an inflationary environment.”
  [10:55]

4. Overlooked Financial Events of 2024

Yen Carry Trade Crisis:

On August 5th, a brief global financial upheaval occurred due to the Japanese yen carry trade:

“The Nikkei 225 dropped more than 12%, and the VIX spiked to 65, the highest since the global financial crisis.”
[12:09]

Software Glitch Impacting Airlines:

A critical software update by CrowdStrike caused widespread disruptions:

“CrowdStrike’s software update froze networks and databases, bringing airlines like Delta to a standstill for a week.”
[14:00]

Matt Argersinger reflects on the vulnerability of tech-dependent toys:

“Tech toys are becoming obsolete once support for their apps ceases, as seen with recent failures like the Moxie AI robot.”
[22:20]

5. Cryptocurrency Developments

SEC Approval of Bitcoin Spot ETF:

Dylan Lewis highlights a significant regulatory milestone:

“The SEC approved a Bitcoin Spot ETF in 2024, with Bitcoin ETFs now managing over $100 billion in assets.”
[15:06]

Bill Mann acknowledges the institutionalization of Bitcoin:

“We have passed a point where Bitcoin is considered an asset of stored value, an arguable prospect even for skeptics.”
[16:24]

6. Holiday Gift Guide and Toy Industry Trends

Popular Toys of 2024:

• Hasbro’s Play-Doh Pizza Delivery Scooter: Combines creative play with interactive features.
• Fat Brain Toys Air Tubes: Educational and engaging for both kids and adults.
• Nintendo’s New Games: Including a new Legend of Zelda title and Mario Party Jamboree.

James Zahn discusses the innovation in toy design and adaptability to current trends:

“Toys are being redesigned to hit accessible price points, with many options now in the $10-$25 range, making them more affordable amid economic uncertainties.”
[32:26]

Challenges with Tech-Dependent Toys:

The collapse of high-priced AI toys like Moxie raises concerns about the sustainability of tech-reliant products.

“Support for apps is crucial for the longevity of tech toys, and without it, these products can abruptly become obsolete.”
[22:29]

7. Consumer Spending Trends During Holidays

Despite economic uncertainties, holiday spending remains robust:

• Affordability: Retailers have introduced more budget-friendly options.
• Parental Spending: Parents prioritize spending on toys despite inflation.

James Zahn explains the strategy behind affordable toy offerings:

“Toy makers and retailers are collaborating to develop products that hit sweet price points, ensuring affordability and maintaining consumer spending.”
[30:50]

8. Stock Picks on the Radar

Bill Mann: Nebius Group

A focus on Nebius Group, formerly Yandex, now a Dutch company running data centers:

“Nebius has significant undervalued assets and recently secured a $700 million investment from Nvidia. It’s poised for interesting developments.”
[35:15]

Matt Argersinger: Cambria Foreign Shareholder Yield ETF (FYLD)

Inspired by Meb Faber’s “Shareholder Yield” concept, combining dividends, buybacks, and debt reduction:

“FYLD offers instant diversification to non-U.S. stocks with a current yield of 4.3%, aligning with a strategy of spreading investment bets.”
[36:08]

Notable Interaction:

Matt Argersinger: “I think I broke the rules. Sorry.”
[36:48]

Dylan Lewis: “You have two very different choices here, Rick. An ETF and something that you didn’t even dignify with a follow-up question or a comment with Nebulous.”
[37:05]

9. Closing Remarks

Dylan Lewis wraps up the episode by celebrating a successful year for Motley Fool Money, acknowledging listeners from 140 countries, and encouraging audience engagement through reviews and feedback.

“Thank you for tuning in and indulging us all year. It was an awesome 2024 for Motley Fool Money.”
[37:46]

This episode of Motley Fool Money offers a comprehensive review of the past year's financial landscape, delving into market trends, sector performances, overlooked financial events, and future outlooks. The discussion provides valuable insights for investors looking to navigate the complexities of the market as they move into 2025.