Day: September 13, 2024

The S&P 500 (SNPINDEX: ^GSPC) index measures the performance of 500 U.S. companies that cover about 80% of domestic equities by market value. The index is generally considered the best barometer for the entire U.S. stock market.

Palantir Technologies (NYSE: PLTR) will join the S&P 500 on Monday, Sept. 23, as part of the index’s quarterly rebalancing. Also joining the index are Dell Technologies and Erie Indemnity. Those three companies will replace Etsy, American Airlines, and Bio-Rad Laboratories.

Palantir stock has advanced 124% over the past year amid widespread interest in artificial intelligence. And history says the stock could move even higher after the company joins the S&P 500 later this month.

History says Palantir stock could soar after its inclusion in the S&P 500

Since 2019, a total of 93 companies have been added to the S&P 500. Of those companies, 76 have been members of the index for at least a year. Here’s how those stocks performed during their first 12 months post inclusion:

• Average return: 12%

• Median return: 10%

The figures change slightly if we go further back. Since 2014, a total of 178 companies have been added to the S&P 500. Of those companies, 161 have been members of the index for at least a year. Here’s how those stocks performed during their first 12 months post inclusion:

• Average return: 13%

• Median return: 12%

In short, history says Palantir will achieve double-digit returns between 10% and 13% over the 12-month period following its inclusion in the S&P 500.

However, investors should bear in mind that every company is different, so generalizing about how new S&P 500 components will perform is unreliable. Moreover, joining the index has zero impact on fundamental financial metrics like revenue and earnings. A study published in 2011 by the Federal Reserve Bank of New York concluded that “index inclusion has no permanent effect on value.”

To that end, whether Palantir stock goes up or down after joining the S&P 500 depends on the company’s financial results and what investors are willing to pay in terms of valuation.

Palantir is a leader in artificial intelligence and machine learning

Palantir specializes in data analytics. Its Foundry and Gotham platforms let businesses collect data, develop machine learning models, and integrate those digital assets into an ontology. The ontology connects data and models to real-world decisions, such that users can surface insights through analytical applications to improve business outcomes. The company says its “key differentiator is a software architecture which revolves around the Palantir ontology.”

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Last year, Palantir launched a new product called Artificial Intelligence Platform (AIP), which adds support for large language models and generative artificial intelligence (AI) to Foundry and Gotham. The company also revamped its go-to-market strategy around AIP by introducing bootcamps, interactive workshops that help customers develop relevant use cases within five days.

In August, Forrester Research recognized Palantir as a leader in artificial intelligence and machine learning platforms. Palantir received the highest score for its current product offering, but competitors Alphabet‘s Google and C3.ai scored higher in terms of product development strategy.

Palantir reported encouraging financial results in the second quarter, beating estimates on the top and bottom lines. Sales increased 27% to $678 million, marking the fifth straight sequential acceleration, and non-GAAP earnings jumped 80% to $0.09 per diluted share. Management also gave third-quarter guidance above what analysts anticipated.

“The persistent and unbridled demand for our software, for an effective enterprise platform that makes artificial intelligence capabilities useful to large institutions, shows no signs of relenting,” CEO Alex Karp commented in his shareholder letter.

Palantir stock trades at a very expensive valuation

Going forward, Wall Street expects Palantir’s adjusted earnings to increase at 22% annually through 2025. That consensus estimate makes the current valuation of 106 times adjusted earnings look expensive. Generally speaking, analysts agree with that assertion. Palantir has a median 12-month price target of $28 per share, which implies 18% downside from its current share price of $34. I would personally avoid this stock until it trades at a much more reasonable valuation.

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Palantir Stock Will Join the S&P 500 in September. History Says It Could Soar Afterward. was originally published by The Motley Fool

With the Fed poised to cut interest rates next week, the ripple effect will show up in certificates of deposit and high-yield savings accounts, which currently offer rates of more than 5%.

They aren’t likely to fall dramatically following a rate cut but rather ease back closer to 4% and linger above the inflation rate for at least the next year. So these accounts should still be your go-to for your emergency fund or cash set aside for short-term expenses.

That said, the Fed’s anticipated action offers an opportunity to make some money moves that take advantage of the downward tilt in interest rates.

“The projected cutting may pull the rug from under the high-yield savings rates,” Preston D. Cherry, founder and president of Concurrent Financial Planning, told Yahoo Finance. “Now might be the best time we’ve seen in a few years to swap cash in high-yield savings for long-term bonds to lock in a higher yield for income payments for lifestyle and retirement portfolios.”

Since 2022, when the Fed began to raise short-term interest rates, bank savings accounts have been a better place to park your cash than bonds. That’s set to change.

Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

Bonds are back

It’s a good time to shift to bonds for those nearing retirement who are looking to rebalance their retirement savings amid stock market volatility.

The best way to earn a high total return from a bond or bond fund is to buy it when interest rates are high but about to come down, Cherry said.

If you buy bonds toward the end of a period when rates are rising, you can lock in high coupon yields and enjoy the increase in the market value of your bond once rates start to come down.

And if you’re a bond lover, you’re up. After more than a decade of dismal bond yields, the two-fold impact of high rates right now and falling inflation offers an opportunity for investment income. When interest rates move lower, bond prices will rise. (Interest rates and bond prices move in opposite directions.)

“Adding low-price and higher-yield long-term bonds at current levels could add total return diversification value to your bond and overall investment portfolio, which has not been the case in recent past rate-raising environments,” Cherry said.

This is a narrow opportunity, though, before rates start dipping and bond prices go up.

“If you have adequate liquidity and won’t need to tap the money at a moment’s notice, then locking in bond yields now over a multiyear period can provide a more predictable income stream,” Greg McBride, chief financial analyst at Bankrate.com, told Yahoo Finance.

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“As the Fed starts cutting interest rates, short-term yields will fall faster than long-term yields in the months ahead, so do this for the income rather than the expectation of capital gains,” he said.

Click here for the latest personal finance news to help you with investing, paying off debt, buying a home, retirement, and more

Laddering provides a ‘more predictable income stream‘

One way savers can pivot as rates head down is to set up a bond or CD ladder with staggered maturities, instead of investing all your funds in a single CD or bond with one set term length. This tactic can provide “a more predictable income stream while providing regular access to principal,” McBride said.

I hold my personal savings, for example, in several buckets, including six-month and one-year CDs, a money market account, high-yield savings accounts, and a checking account.

The bulk of my retirement holding is stocks and bonds mainly through broad index funds. How you divide up your savings and investments between stock and bonds, mutual funds and money market funds, or high-yield savings accounts is a balance that only you will know you’re comfortable with, based on your risk tolerance and how soon you need to tap the funds.

Many retirees want a more conservative asset mix as they age so they don’t face that uneasy feeling when the stock market is shaky. That’s why near-retirees and retirees, in particular, who haven’t taken a gander at their asset allocations for a while should consider doing so.

Read more: CDs vs. bonds: What’s the difference, and which one is right for me?

How to put money in bonds for right now and retirement

Most 401(k) investors are in bond mutual funds for the fixed-income portion of their portfolios, which are highly diversified and usually invested in intermediate (five-year) high-quality government and corporate bonds.

Most of us aren’t researching and investing, for instance, in individual intermediate bonds. If you opt to do it yourself and choose individual bonds and hold them until they mature, you’ve got plenty to select from, of course. Fidelity offers over 100,000 bonds, including US Treasury, corporate, and municipal bonds. Most have mid- to­ high-quality credit ratings, but to me the sheer number of choices is mind-boggling.

So I buy shares in a wide range of individual bonds via a bond mutual fund or ETF to add a bond ballast to my retirement accounts. The Vanguard Total Bond Market ETF, for example, is a diversified, one-stop shop comprising more than 11,000 “investment grade” bonds — including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities — all with maturities of more than one year.

Right now, more than 60% of the Vanguard fund’s total assets are in government bonds, and its year-to-date return is 4.94%.

As Vanguard notes, this fund “may be more appropriate for medium- or long-term goals where you’re looking for a reliable income stream and is appropriate for diversifying the risks of stocks in a portfolio.”

For shorter-term goals, staying ahead of rates falling is smart to lock in alluring rates for money you might need sooner rather than later.

Have a question about retirement? Personal finances? Anything career-related? Click here to drop Kerry Hannon a note

Cash has ‘zero risk’ of losing nominal value

The majority of financial advisers I spoke to didn’t suggest any knee-jerk actions ahead of the Fed meeting. In other words, don’t close your bank accounts.

“Inflation has certainly moderated, but in our opinion is not likely to be a further decline substantially,” said Peter J. Klein, chief investment officer and founder of ALINE Wealth.

If that’s the case, the Fed will not keep lowering interest rates but will hold them steady moving forward.

“Looking at the long arc of inflation history, one can see the changes … leading to sticky and persistent inflationary pressures. So, the notion that rates will come down substantially — and stay down — is not our base case,” Klein said.

That means that those savings you have in a federally insured, accessible bank account earning above the rate of inflation remain a good bet. That’s especially the case for those nearing or in near retirement who plan to tap that money for living expenses and don’t want the worry that comes from price fluctuations in stocks and bonds.

“Cash is the only asset that an investor can deploy in a portfolio that has zero risk of losing its nominal value,” Klein added.

Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on X @kerryhannon.

Click here for the latest personal finance news to help you with investing, paying off debt, buying a home, retirement, and more

Read the latest financial and business news from Yahoo Finance

Suze Orman, the finance guru known for her sharp advice, has a bone to pick with home insurance companies. At 72, she’s decided enough is enough for the wild costs of insuring her Florida beachfront condo – and she’s speaking out.

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In an interview with DailyMail.com, Orman said she’s been quoted $28,000 yearly for home insurance on her 2,100-square-foot Florida condo. Let that sink in for a second. “$28,000 for a 2,100-square-foot condo. Are you kidding me?” she said, shocked by the price tag.

Luckily for Orman, she can self-insure, meaning she doesn’t need the policy. But her worry? Most Americans aren’t in the same boat, and she’s worried this insurance crisis could push the American dream of homeownership even further out of reach.

Trending: Founder of Personal Capital and ex-CEO of PayPal re-engineers traditional banking with this new high-yield account — start saving better today.

Orman didn’t hold back, explaining how climate change is wreaking havoc not just on the environment but on our wallets too. “Climate change is going to make a big difference in people’s desire to own their own home,” she said. “Look at what’s happening in Southern California. Look at the devastating hurricanes that are coming to places where hurricanes weren’t so prevalent before.”

And the numbers back her up. The National Oceanic and Atmospheric Administration (NOAA) reported 28 billion-dollar natural disasters across the U.S. last year. As you’d expect, this has sent insurance costs soaring. According to the National Association of Realtors, the average home insurance premium is now $2,377 a year – and rising. Homeowners can expect to pay 6% more by the end of the year.

In Florida, NAR reports the average insurance price to be around $11,700 for 2024. According to their estimates, Louisiana homeowners can expect to pay close to $8,000 by the end of the year. “It’s possible that the highest-risk areas will become uninsurable,” says Betsy Stella, vice president of Carrier Management and Operations at Insurify, as rising risks make coverage increasingly difficult to obtain.

See Also: Can you guess how many Americans successfully retire with $1,000,000 saved? The percentage may shock you.

Orman warns that if these insurance prices keep climbing, many will think twice about homeownership. “Real estate is unpredictable. I never would have thought to advise homebuyers, ‘Oh, you better make sure you can afford a quadrupling of property insurance in the future,'” she added.

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For many homeowners, though, there’s no escaping these costs. If you’re buying a home with a mortgage, you can’t close the deal without insurance. Orman, however, owns her condo outright, so she can opt out. Her choice? Skip the $28,000 a year premium. “I’m not paying $28,000 a year when the insurer will probably contest any claim I get anyway,” she said bluntly.

Wildfires, floods, and tornadoes are occurring more often, forcing insurers to raise premiums or leave the game altogether. Allstate recently approved a 34% increase for California homeowners, taking effect in November. In June, State Farm increased rates in the state by 30%.

Trending: The average American couple has saved this much money for retirement — How do you compare?

So, what’s the take-away here? Orman’s got a point. Climate change, rising repair costs, and an under-pressure insurance industry are reshaping what owning a home in America means. And while Orman has the means to skip the insurance headache, many others don’t. As she warns, the dream of owning a home might get much more complicated – and expensive.

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This article Suze Orman Isn’t Wasting Money On Insurance For Her Condo – ‘I’m Not Paying $28,000 A Year When The Insurer Will Probably Contest Any Claim’ originally appeared on Benzinga.com

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Key Takeaways

• GE Vernova shares closed at their highest level since being spun off from General Electric in April.

• The company said its offshore wind division should be profitable in the fourth quarter.

• Strength in its power and electrification segments led the company to reaffirm its full-year guidance.

GE Vernova (GEV) closed at a record high Thursday after the recent General Electric spin-off reaffirmed its full-year financial guidance.

The energy company said Thursday at a Morgan Stanley investing conference that it expects revenue on the higher end of its previously disclosed $34 billion to $35 billion range, driven by strength in its power and electrification segments. Its offshore wind segment, which it projects to post a loss of $300 million in the third quarter, should be profitable by the fourth quarter.

Record Close Reached Thursday

Shares of GE Vernova climbed 2.9%, reversing an early-session decline, to close at $215.27.

The company began trading in April after General Electric spun off its energy division from the aerospace division, with the entities becoming GE Vernova and GE Aerospace (GE), respectively. GE Vernova’s shares are up more than 50% since their trading debut. 

Read the original article on Investopedia.