The stock market has been on a tear since the Fed announced it would start what has been labeled non-QE QE (quantitative easing) in October. The S&P 500 is up 15% since then. The more speculative Nasdaq is up more than 20% and the FANG+ Index (a new index comprised only of the hottest tech stocks) is up 35%.

Envious of the returns in the S&P or Nasdaq? Don’t be.

You can’t call yourself an investor today and expect to keep up with either index. Even the S&P has now become way too speculative for investors in or nearing retirement.

To keep up with the S&P today you almost certainly have to load your portfolio with the top five stocks in the index. Those five stocks now account for a record share of the S&P 500—nearly 20%. The average yield of this group is 0.44%, with only two dividend payers in the group and all five in the technology industry.

A Speculative Blow-Off Phase

Stocks appear to be in a  speculative blow-off phase fueled by monetary policy.. Interest rates are way too low for an economy this strong and quantitative easing is the last thing the Fed should be doing more than a decade into an expansion.

Unfortunately, speculation is what is being rewarded for the moment, but rarely is this sort of move durable.

For a taste of just how unmoored this market has become, consider the following stocks.

  • Virgin Galactic:  The shares of Virgin Galactic, a firm with no revenue but a market value of over $4 billion, are up 65% YTD.
  • Tesla:  Tesla, which produced about 350,000 cars last year, is now the world’s second most valuable auto firm as measured by market value. Volkswagen, which produces 11 million cars annually, is worth less than Tesla. Tesla shares are up 37% YTD.
  • Beyond Meat: Beyond Meat, the plant-based protein company that did just under $275 million in sales last year, is valued at 27X sales. Not earnings, but sales. Hormel, a company that produces the world’s most consumed meat (pork), sells for 2.7X sales. Hormel sold close to $10 billion worth of pork and other products last year. Beyond Meat shares are up 57% YTD.
  • Uber: Uber, a company that lost almost $9 billion over the last twelve months and still hasn’t proven a path to profitability, is up 26% this year.

Just to put these numbers in perspective, YTD is 15 trading days.

Sound like a healthy market to you?  Is this how you want to invest your retirement money?