🎙️ Cash Trap

As Big Tech sits near all-time highs, hedge funds continue to hold the Magnificent 7. Microsoft is their most popular stock—nearly 900 hedge funds hold the tech giant.

It’s noteworthy because hedge funds managed over $4 trillion in assets last year, a record high. Outside of tech stocks, many big funds hold Visa, JPMorgan Chase & Co, and Berkshire Hathaway.

Today’s chart below shows the 15 most popular hedge fund investments.

By the way, we’d love to get to know our readers better. If you’re interested in connecting, schedule a 15 or 30-minute call with us here to chat about life, investing, newsletters, and anything else.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Amazon soars to $2 trillion valuation

• Americans chase high interest rates

This, and more, in just 5 minutes to read.

Chart of the Day

Sponsored Content

Private Markets, Powered by Collective Expertise of HNW Investors

Investing in private market opportunities is challenging. The difference between success and failure in private markets comes down to your network.

Long Angle is a vetted community of 3,000 high-net-worth investors who leverage their collective expertise and scale to access and underwrite some of the world’s best alternative asset investments.

After reviewing hundreds of opportunities, Long Angle diligence deal teams greenlight a dozen deals each year. Asset classes range from Private Equity, Search Funds, and Private Credit to Secondaries, Real Estate, and Venture.

No membership fees. All members receive equal access to negotiated fee discounts powered by the community’s $45 billion in collective assets.

In The News

📦 Amazon Soars to $2 Trillion Valuation

As Nvidia takes a breather, Amazon is grooving to new highs, surpassing the $2 trillion valuation milestone. The tech giant is the fifth U.S. company to do so alongside fellow Magnificent 7 members in Alphabet, Apple, Microsoft, and Nvidia. 

• Amazon shares rose about 4% Wednesday, helping its ~30% rally year-to-date. The company reached the $1 trillion mark in February 2020, then took over four years — surviving a major selloff in 2022 — to reach $2 trillion.
  

• In contrast, Nvidia reached its second trillion in 180 days, driven by high demand for its advanced AI chips.

Amazon's CEO Andy Jassy has been steering the company toward AI innovations, aiming to catch up with competitors like Microsoft and Google. In his annual letter to shareholders in April, Jassy emphasized the potential of generative AI as a new growth pillar for Amazon, complementing its existing businesses such as the online retail marketplace, Amazon Prime, and Amazon Web Services (AWS).

• Jassy wrote: “Generative AI may be the largest technology transformation since the cloud (which itself, is still in the early stages), and perhaps since the Internet. There has never been a time in Amazon’s history where we’ve felt there is so much opportunity to make our customers’ lives better and easier.”
  

• Jassy added he is “optimistic” that much of the generative AI transformation will be built on top of Amazon Web Services.

High powered: Analysts have highlighted Amazon's logistics business, suggesting it could become the largest U.S. shipper, surpassing UPS. They also projected margin improvements that could enhance Wall Street's earnings estimates for Amazon. 

Amazon shares have soared about 105% in the past five years, much less than Apple, Nvidia, Alphabet, and Microsoft, but better than the S&P 500’s 86% rise during the same period. 

• “Part of the good stock performance over the last six to nine months for Amazon has been related to the fact that it was oversold,” one analyst noted.

Why it matters:

Amazon’s latest earnings report showed its strong sales growth in the cloud. That, coupled with cost-cutting measures and restructured operations, has helped it capitalize on the growing artificial intelligence (AI) trend. 

• Further, investors have been particularly optimistic about the signs of re-accelerating growth in Amazon Web Services (AWS), the company's crucial cloud computing division.

Bottom line: This resurgence in AWS and the company's positioning in the AI space have bolstered investor confidence and supported the stock’s latest boost — not bad for a company that began out of a garage in 1994.

Read more

More Headlines

🍲 What’s next for Chipotle after rally and 50-for-1 stock split

💰 The median income in every U.S. state in 2024

✈️ How Delta made itself America’s luxury airline

⛽ Hedge funds turn most bearish on gasoline in five years

📈 The most important stock market chart of 2024: Tech’s reign

🚙 Rivian stock soars as Volkswagen will invest up to $5 billion in EV maker

💸 Americans Chase High Interest Rates Amid ‘Cash Trap’

Even as the stock market has soared through the first six months of 2024, some Americans aren’t in any hurry to move their cash. 

Some investors have 25% or even 50% of their assets in Treasury bills and money-market funds, per The Wall Street Journal. They’re earning about 5%, and many say they plan to keep their money there until the Federal Reserve cuts short-term interest rates to 4% or below. 

“I like the safety,” one family said of parking most of their portfolio in money-market funds earning 5%. 

Cash trap: Americans are relying on cash-like investments at a record clip. Assets in money-market funds swelled to a record $6.12 trillion this month. But with rates at or around their peak, investors 

• Knowing when and how to rebalance one’s portfolio is difficult, even for the pros. Like many investment decisions, it depends on one’s age, savings, goals, needs, risk tolerance, and so on.
  

• And while 5% is enticing to many, some investors fear missing out on bigger gains from stocks, bonds, and other investments.
  

• JP Morgan Asset Management calls the dilemma the “cash trap.”
  

• “If you’ve owned cash for the last year and a half, that view in the rearview mirror is pretty attractive, and you feel good about yourself,” said the head of actively managed bond products at Vanguard. “But you have to remind yourself that that’s the rearview mirror.”

What to do? Some portfolio managers and advisors told WSJ that investors could consider a diversified bond portfolio to “lock in attractive long-term yields before the Fed begins cutting rates.”

It’s also unclear when the Fed will cut rates, and Wall Street has already made numerous incorrect assumptions about interest rates.

Why it matters:

Weighing the pros and cons of an investment decision like this can greatly affect one’s performance.  

Some investors are still increasing their cash holdings due to concerns about political and geopolitical uncertainties, though financial advisors caution against making investment decisions based on emotions or attempting to time the market.

Potential drawbacks to staying in cash include:

Opportunity cost: The S&P 500 has risen about 15% this year and nearly 30% over the past 12 months. 

Inflation risk: Cash holdings are likely to lose value due to inflation after about three years, according to The Wall Street Journal. 

Tax implications: Interest from money market funds is typically taxed as ordinary income, often at higher rates than dividends or capital gains.

Higher fees: Money market funds tend to charge higher fees than stock-index funds.

Whatever investors do, the chief global strategist at J.P. Morgan Asset Management has one key observation: “People generally feel negative and pessimistic. If they invest based on how they feel, they are going to hang on to cash forever.”

Read more

Together With First National Realty Partners

Attention Investors: Experience future-focused investing with FNRP. 

Specializing in commercial real estate, FNRP offers investors exclusive access to opportunities with the potential for passive income and capital appreciation. Join today and elevate your investment strategy for the future.

*Sponsored content

Quick Poll

On Monday, we asked: What percentage of your retirement portfolio would you consider allocating to real estate?

— Most readers would consider allocating between 0% and 25% of their retirement portfolio to real estate.

— One said: “I get it; real estate has been hot for a long time. It feels like a can't-miss. But when it cools off, it can be a money-losing nightmare offloading properties in difficult markets. ”

— Another respondent noted, “Much like gold/silver, I would only allocate about 5-10%. Real estate seems like a no-brainer on paper, but it comes with serious drawbacks like property taxes, illiquidity, and unpredictable markets. After updating the house and finding a 'good' tenant, it does seem like a 2nd job...I'd rather be in something easier to hold with no maintenance cost, like Bitcoin.”

See you next time!

That's it for today on We Study Markets!

Enjoy reading this newsletter? Forward it to a friend.

Was this newsletter forwarded to you? Sign up here.

Use the promo code STOCKS15 at checkout for 15% off our popular course “How To Get Started With Stocks.”

Advertise with us.

Follow us on Twitter.

Keep an eye on your inbox for our newsletters on weekdays around 6pm EST and on weekends. If you have any feedback for us, simply respond to this email.

You can also leave your comments/suggestions/feedback anonymously here.