Investment Portfolio Performance: Looking Beyond the Shutdown

The bill still needs to be approved by the House of Representatives, which is expected to occur smoothly, and then it will be sent to the president’s desk for signing. The only drawback: the deal only funds the government through the end of January. So, we may go through all of this drama again sooner than anyone would like. 

Stocks Rally on Reopening 

Nonetheless, news of the compromise sent stocks sharply higher. A reopened government means employees will receive pay for the time they were out of work, the federal government will fund the SNAP (food stamps) program, air traffic controllers will be paid (and flights will take off on time again), and uncertainty about the government's operations will be alleviated. It means people will have money in their pockets to make purchases during the all-important holiday shopping season, which kicks off on Black Friday, the day after Thanksgiving. 

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Valuations are Lofty 

Now that the shutdown has been resolved, investors can turn their attention to the stock market’s fundamentals. So far, investors have largely shrugged off any concerns about valuation. The S&P 500 has had a fabulous 2025, rising roughly 15% through mid-November. Technology-related stocks have fared even better. The S&P 500 Information Technology sector has gained about 27% this year (as of the time of this writing), and the S&P 500 Semiconductor Equipment industry has soared about 73.0%. 

The market's strong performance has lifted valuations to levels rarely seen before. The S&P 500’s forward PE was recently at 22.8, far above its 30-year average of 17.0. Likewise, the index’s dividend yield has fallen to 1.5%, far below its 30-year average of 2.0%. The S&P 

500’s forward PE has only been higher one other time: in the period preceding the tech bubble of 2000, which certainly isn't reassuring. 

Focusing on Diversification 

The S&P 500 is also dominated by a few very expensive, very large companies. The 10 largest companies in the S&P 500 represent a record 40.1% of the index’s market capitalization, but only 32.5% of the index’s earnings. Investors who buy the S&P 500 may think they're diversified, but in reality, they are highly exposed to these ten large stocks and underexposed to the remaining 490 stocks in the S&P 500. 

The S&P 500’s 10 largest companies also sport a very high P/E of 29.9 times forward earnings. That's higher than their long-term average forward P/E of only 20.6 times. The 10 largest companies are also much more expensive than the remaining 490 companies in the S&P 500, which have a forward P/E of 19.5. 

The companies that sport the highest P/Es, in general, can fall the most when there's a market correction. It's essential to recognize the importance of diversification in an investment portfolio and ensure it’s not overly concentrated in the top ten stocks of the S&P 500. An equal-weighted S&P 500 index fund will increase investors’ exposure to the 490 stocks in the index. 

Investors should always strive to understand the stocks in their investment portfolios and ensure they are well-diversified. Our team at WHZ is here to help. Call us at (860) 928-2341 or schedule a complimentary discovery session now with our team. Together, we can create a strategy designed to give you Absolute Confidence. Unwavering Partnership. For Life.    

Authored by Senior Partner and Chief Investment Officer, Laurence Hale AAMS, CRPS®.  Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor.