Lui’s Lowdown on the Stock Market: Bird in hand has been better than two in the bush…
By John Lui - Chief Investment Strategist
CWM Shutterstock
It is a market of stocks and not a stock market…
Source: Charles Schwab
The market of stocks is showing a clear divergence. As of March 7, 2025, the Vanguard High Yield ETF (VYM), which serves as a proxy for dividend stocks, is up +3.07% year-to-date. In contrast, the S&P 500 is down -2.09%, with two of its largest components—Nvidia and Tesla—declining significantly more (Nvidia is down -18.04%, and Tesla is down -37.07%). VYM, with its focus on dividends, represents the “bird in hand,” while Nvidia and Tesla, which focus on capital appreciation, are the “two in the bush.” So far in 2025, the bird in hand has outperformed the two in the bush. Why?
One key factor is valuation. In my December 2024 "Lui’s Lowdown" strategy piece, “Bad Breadth & Selfies,” I warned clients that S&P 500 performance was increasingly dominated by the Magnificent 7, all of which were trading at high valuations. I specifically highlighted Nvidia and Tesla as stocks to watch. Here's an excerpt from that piece:
Investors are pricing in accelerating growth for the Magnificent 7, driven in part by artificial intelligence (AI), which explains their high Price/Sales multiples. I believe Apple, Microsoft, Amazon, Alphabet, and Meta will benefit from AI, as they have strong customer retention and a proven track record of offering valuable new products and services. I would take a selfie with all of them.
However, I do not understand Elon Musk's vision for Tesla, and until I do, I’m not convinced enough to take a selfie with it.
As for Nvidia, I’m cautious due to its high valuation and anticipated slowdown in revenue growth. I would reconsider it only if its valuation becomes more attractive.
Another factor at play is the rising geopolitical tensions, which have prompted momentum investors to de-risk. These "fast money" investors are rotating out of momentum stocks—the "two in the bush" types—and into dividend stocks, the “bird in hand.” This rotation is reshaping market leadership and improving the narrow market breadth I mentioned in my previous piece. The broadening of the market is a healthy development, and it’s a good reminder that we should view this phase as a market of stocks, rather than just a stock market.
At Chatham Wealth, we build portfolios with a forward-thinking approach, focusing on long-term strategies rather than reacting to short-term news. I hope my recent insights prove helpful as we move into 2025 and beyond. Our team is here to support you in making informed decisions that are best suited to your needs. Between clients filing taxes and the recent market volatility it is a busy time in our office. We are here to help navigate all your financial issues. As always, please don’t hesitate to reach out to us.
John Lui
Disclosure
Chatham Wealth Management is registered as an investment adviser with the SEC. SEC registration does not constitute an endorsement of the firm by the Commission, nor does it indicate that the adviser has attained a particular level of skill or ability.
Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be profitable for a client's portfolio.