Mega Cap Stocks Look Expensive, Where Else to Look?

Week in Review

As the year draws to a close, the stock market has shown strong performance and reasonable fundamentals outside of large caps, providing a supportive foundation for 2025. This optimism, though, begs the question of potential unforeseen events and how investors can position themselves for the future.

While many may view current market valuations as inflated, particularly with the dominance of mega-cap technology stocks, it's important to note that this isn't a universal trend. In fact, many sectors are trading at or below their 10-year average. A prime example of the impact of high expectations can be seen in the recent results and stock reaction of NVIDIA. The technology sector as a whole appears to be experiencing a consolidation period as it digests its significant gains over the past two years, but other industries have stepped up to fill the void.

Another potential source of uncertainty comes in the form of tariffs, should they be enacted. Such measures could lead to a one-time increase in prices, but there are contingency plans in place to mitigate their impact. Small and Mid-caps are more immune to tariffs compared to their large multinational peers.

To safeguard portfolios against these potential risks, investors may want to consider a diverse allocation that includes value-style investments, as well as smaller and mid-sized companies with a greater reliance on domestic revenue. These firms could see relative benefits from a boost in U.S. economic growth and lower tax rates.

Economic & Earnings Calendar

The upcoming holiday-shortened week will bring a focus on retailer earnings and the Federal Reserve's preferred inflation data. On Thursday, U.S. stock and bond markets will be closed for Thanksgiving, with a half day of trading on Friday.

The week will kick off with quarterly reports from Bath & Body Works and Zoom Video Communications on Monday, followed by a busy Tuesday with releases from Best Buy, CrowdStrike, Dell Technologies, Dick’s Sporting Goods, HP, Macy’s, Nordstrom, and Workday.

On Wednesday, the Bureau of Economic Analysis will release the personal-consumption expenditures price index for October, with economists predicting a 2.3% year-over-year increase.

Additional economic data to watch next week includes new residential sales for October and the Conference Board's Consumer Confidence Index for November on Tuesday, followed by the durable goods report for October and the National Association of Realtors' Pending Home Sales Index for October on Wednesday.

The week will end with the release of the minutes from the Federal Open Market Committee's early November meeting on Tuesday afternoon.

Chart of the Week: NVDA, AMZN and META have accounted for 7.7% of the S&P 500’s increases this year.

Disclaimer: The author of this blog is a financial advisor but may not be the right advisor for you. In fact, the author may not even be the right advisor for themselves. Please consult a qualified professional before making any financial decisions based on the content of this blog. And remember, just because the author has a fancy title and a briefcase full of spreadsheets, doesn't mean they know what they're doing.