Retailers have struggled to cope with an alarming surge in theft over the past few years. What started as a few stores being targeted in at-risk areas amid pandemic lockdowns and persistent inflation has become an epidemic of large-scale, systematic smash and grabs by well coordinated groups, according to some industry veterans.

This isnt the random shoplifter anymore, Home Depot CEO Ted Decker told CNBC last week, adding that he fears for the safety of his employees.

In 2021 alone there was a 26.5% spike in organized retail crime incidents, data from the National Retail Federations (NRF) annual Organized Retail Crime study released in April shows. The rise in this type of organized retail theft was responsible for nearly half of the record $94.5 billion in retailer shrink that yeardefined as the mismatch between retailers actual inventory and marked inventory. Retailer shrink rose 53% between 2019 and 2021.

Retailers have been vocal about the consistent issues theyve had with shrink due to theft since the start of pandemic lockdowns. Walmart CEO Doug McMillon told CNBC in December that organized retail crime could force his firm to hike prices or even close stores if its not corrected over time. And Target CEO Brian Cornell told investors in a May earnings call that retail theft is a worsening trend that emerged last year.

The rise in crime has already seriously affected some retailers earnings as well, forcing them to fight back by locking up products in stores that are consistently targeted by thieves. Target said last month that it now expects its shrink losses to reach $1.3 billion in 2023a $500 million increase from a year ago. 

But Walgreens CFO James Kehoe said in an earnings call earlier this month that shrink at his stores has stabilized, adding that maybe we cried too much last year. And now, a UBS team, led by equity research analyst Michael Lasser, is arguing that the shrink era may have hit its cyclical peak as retailers and authorities step up their anti-crime measures and focus on the issue.

There are periods where shrink rises and ebbs, he wrote in a Tuesday research note, arguing recent data suggests the peak of the shrink cycle is already here and investors might be able to profit from the turnaround.

The natural shrink cycle?

Lasser points to earnings transcripts as evidence for his theory that shrink and retail theft is cyclical in nature. He noted that historically, mentions of shrink-related keywords, including those related to retail theft, tend to spike and then remain elevated for two to five quarters before falling back to trend. 

In the second quarter of 2013, for example, mentions of shrink-related terms soared and remained above normal until the third quarter of 2014 before falling. Given this trend, Lasser said that he expects shrink to improve moving forward as it naturally falls back to historical levels.

UBS

Its not just crime that affects retailers shrink figures, however, and part of the recent rise in shrink losses at retailers was unrelated to theft, according to Lasser.  

We believe several factors have been responsible for the growing profit drag, the analyst wrote Tuesday, arguing that the rollout of new e-commerce initiatives and curbside pickup model coupled with staffing issues  have exacerbated operational inefficiencies and increased shrink at retailers over the past few years.

To his point, in 2022, just 37% of shrink was caused by external theft, while 28.5% was caused by internal theft, 25.7% was the result of process or control failures, and roughly 9% was attributed to unknown or other sources, according to the NRF.

Lasser argued that as supply chains heal and companies develop a better understanding of how to reduce internal theft and manage their new e-commerce initiatives, shrink will naturally fall. Soon, we believe shrink will reach a turning point and become a favorable profit driver for several retailers, he wrote.

The anti-shrink measures and beneficiaries

One of the key reasons shrink tends to be cyclical is that retailers and authorities typically crack down when it gets too severe, and thats whats happening now. Lasser noted that retailers are making new investments in technology when addressing their plans to tackle shrink, including the leaning on RFID chips to track inventory and facial and license plate recognition systems to track shoppers.

Lasser said these tech-based security tools should help prevent theft along with classic strategies like changes to return policies, increased employee screening, and the addition of security personnel. And while retailers have been looking for their own solutions to the retail theft problem, theyve also been working with authorities. UBS found in its discussions with retailers that there is increasing cooperation with local authorities to better address shrink and mitigate the effects.

The news comes after Walmart U.S. CEO John Furner told investors in a May earnings call that the rise in theft has been challenging really for all of retail and retailers cant solve this problem on their own. It will take communities stepping up and enforcing the law to be able to bring this issue back under control, he said. 

Lasser also noted that the Integrity, Notification and Fairness in Online Retail Marketplaces for Consumers Act (INFORM Act)  should help with retailers shrink problem. The recently passed federal law that will take effect by the end of June is meant to deter criminals from selling stolen, counterfeit, or unsafe items on online marketplaces.

We believe that this act should alleviate some ORC pressures as it imposes a greater burden on organised crime groups and repeat offenders looking to liquidate stolen product, he explained, referring to organized retail crime.

Lasser and UBS also highlighted some companies that will benefit as shrink figures improve, including mass retailers like Target and Walmart, discount retailers like Dollar General and Dollar Tree, home improvement stores like Home Depot and Lowes, and specialty retailers like Dicks Sporting Goods and Ulta Beauty. 

As shrink improves, we believe that those retailers who have been most negatively impacted will benefit the most, he wrote, adding that investors should look to take advantage of fading shrink in 2024 through these companies.

Zooming from her camper in Milwaukee, Jessica McCorkle told me about her daughter and how shed been very sick for five years. After going to several doctors for three years as she got progressively worse, Addison, whos 15 now, was diagnosed with pediatric acute onset neuropsychiatric syndrome. It was triggered by a prior mono infection. McCorkle says her daughter went from a happy child to a completely different person overnight. 

I had my daughter, and then I didnt have my daughter, like mentally she was not there, McCorkle said, trying to hold back tears. You could see it in her eyes that she was still in there somewhere. 

Once Addison was diagnosed, she went through nearly two years of intravenous immunoglobulin treatments, before their doctor told them she was in remission. That night, McCorkle remembers coming home crying to her husband, questioning their lives. 

I looked at him, and I was like, we just need a reset, McCorkle said. 

McCorkle and her husband, whos a stepfather to her three kids, were both in their mid-thirties and worked long hours. She owned her own business selling natural cleaning supplies and felt like she barely saw her kids. They decided to get a camper and take a trip for a couple of monthsa reset from life, as McCorkle put it. That trip out to the West Coast, beginning with Albuquerque evolved into their new lifestyle: living in a RV and traveling across the country, homeschooling their three kids. That trip they took before realizing theyd like to do this longer term became a sort of trial run.

We didnt really know that it was a trial run, McCorkle said, as her husband Dub, sitting beside her laughed, We didnt plan to live in a camper. 

But theyd found a whole group of other families that lived in their campers, traveling full time, and it felt like a community. The entire trip, McCorkle said, was an emotional experience for their family. They went back home and sold their home in South Carolina. That was around the end of 2020, and theyre still going and have no plans to stop. 

Stopped in Milwaukee for medical appointments, McCorkle said this particular stop wasnt as fun as their usual travels. But theyre headed to the upper peninsula of Michigan and then to Indiana to run some cross-country errands, as McCorkle put it, before meeting up with friends in Massachusetts in June. Their 47-foot fifth wheel, and home, is their third camper. They knocked down a wall that separated two loft areas to make it one big living space, took out one of the two showers for more storage room, and built cabinets for the garagequite an upgrade from their first camper that cost them $36,000. McCorkle calls it a boujiee camper.

Theyve made it to their 30th state and are in their third year of their cross-country tour, and aside from loving the big cities like New York where they camped right on the Hudson River and hopped on the subway to get to the city, McCorkle said southern Utah has been her favorite spot yet. The national parks and beautiful views everywhere you look seemed to have made it a simple choice for her. 

Youd think that her and her husband would be the outdoorsy type considering their lifestyle, but neither of them grew up camping and McCorkle said shed only been in a camper once before in elementary school. So it hasnt always been easy. When her family first started traveling, living out of their camper, McCorkle said she didnt know how to do nothing. She remembers sitting on the couch one night, when all the kids were asleep, thinking that she couldnt do this. The next day she went to Walmart and bought yarn and crochet hooks. By the end of that day McCorkle crocheted winter hats from the whole family, granted it was summer at the time, but it gave her something to do. 

Theres definitely ups and downs, and its not perfect, McCorkle said. Its not like going to national parks every single day, we still have a regular life, we still have to workBut I can say that we are definitely more intentional with our life now.

When she says intentional, McCorkle explained that she thinks of it as not being stuck in a rut, having the same routine, and not living for each day. Thats changed for her, but it was hard to adjust, particularly to not being with family. Its become almost a tradition for them to meet their extended family in Florida every winter, like a make-shift home base for them. But despite initially thinking that theyd be lonely living on the road, theyve found themselves rolling with a community of families living the same way. 

Nobodys running their lives ragged, and I cannot have wrapped my head around how this works until we were like in itBut we travel together, McCorkle said, stressing how important friendship is to her and how she didnt want her kids to miss out on that since theyre homeschooled and constantly on the move. 

Aside from finding a community, theyve also built one, with more than two million followers on TikTok alone. McCorkle and her family are known as the family of nomads on social media. Her goal was to simply show people their lifestyle and essentially encourage them to think outside the box in terms of how they live. After posting one of her first videos, it went viral. People had questions, and they continue to have questions, so she keeps posting clips to answer themnow its her familys main source of income. 

When asked if theres been any moments where they doubted their decision, McCorkles husband laughed and said, when it got down to the thirties in Phoenix. But then she pointed to a singular moment where she said she knew theyd made the right decision, selling their home, packing up, and living in an RV indefinitely. McCorkle and her family were at a state park in Tennessee and they were all just outside hanging around, but she said she felt so much peace.  

We were able to just really fully be in the moment, McCorkle said. And so many of lifes stressors go awaywhen you remove yourself from the hectic lifestyle that society tells you that youre supposed to have.

They were all busy, McCorkle said, even her middle daughter who was involved in so many activities that she loved, but at the end of the day would come home crying because she felt like she never saw her family. McCorkle said it was as if she didnt realize how much time it takes to think and manage everything that comes with living a traditional life. 

We just were sitting outside, and we didnt have anything on our to-do list, McCorkel said, her voice cracking slightly. Like before we started traveling, we had to-do lists that never got finished. We just were sitting outside with no to-do list that was looming over us, and we were just enjoying our family.

Alan Turing, the trailblazing mathematician played by Benedict Cumberbatch in The Imitation Game (2014), is considered the father of artificial intelligence. One of his legacies is the Turing test, which measures whether a machine can think like a human, and has long been a north star in the artificial intelligence field. For the Turing test, a person and a machine have a text conversation, and another human tries to determine which participant is the human. The test, created in 1950, was originally named the imitation game because it gauges how intelligent a machine is based on how indistinguishable it is from a human.

An A.I. program called Eugene Goostman first passed the Turing test in 2014, and newer chatbots such as ChatGPT and Googles LaMDA have passed it more recently. Considering the increasing sophistication of generative A.I. chatbots, the test is outmoded and machine intelligence demands a new lodestar, according to Mustafa Suleyman, cofounder of the A.I. lab DeepMind. Suleyman, who sold DeepMind to Google for $650 million in 2014, is among the few A.I. founders to have already made his millions in the field.

Large language model chatbots like ChatGPT, Microsofts Bing, and Googles Bard can communicate fluidly in text conversations after being trained on human-produced online content. Many chatbots use natural language processingthe interdisciplinary use of computing and linguisticsto understand large amounts of ordinary language much like a human would, taking context into account.

Its totally unclear whether [the Turing test] is a meaningful milestone or not, Suleyman told Bloomberg. It doesnt tell us anything about what the system can do or understand, anything about whether it has established complex inner monologues or can engage in planning over abstract time horizons, which is key to human intelligence.

The Turing tests utility is fading because chatbots can now emulate human writing without having any true level of understanding, by simply generating the most likely series of words. In Suleymans upcoming book, The Coming Wave: Technology, Power, and the Twenty-first Centurys Greatest Dilemma, he argues for a new gold standard for measuring A.I. sophistication. 

Suleymans new proposed gauge, which he referred to as the modern Turing test, is based on entrepreneurship. The test asks A.I. to turn $100,000 in seed money into $1 million by devising an original product idea, creating an e-commerce business plan, finding manufacturers, and listing the item. This test would allow evaluators to measure A.I.s ability to set goals, plan, and execute complex tasks. 

While the original Turing test lets chatbots skate by with high level imitation, Suleymans model would require machines to exhibit the advanced strategy and reasoning skills that make human intelligence unique. The Turing tests goal is to see whether a machine is at least as intelligent as a human, but to determine this, a machine must be tested outside just its conversational abilities.

We dont just care about what a machine can say; we also care about what it can do, Suleyman writes in The Coming Wave.

It took a machine 64 years to pass the Turing test, but Suleyman thinks A.I. will pass his proposed update to the Turing test within the next two years.

If that happens, The consequences for the world economy are seismic, he told Bloomberg.

Suleyman and Crown Publishing, the publisher of his book, were not immediately available for comment.

Homeless people in California are already a vulnerable group, often struggling with poor health, trauma and deep poverty before they lose their housing, according to a new study on adult homelessness.

The study released Tuesday by the University of California, San Francisco attempts to capture a comprehensive picture of how people become homeless in California, and what impeded their efforts at finding permanent housing. The representative survey of nearly 3,200 homeless people found that when they lost housing, their median household income was $960 a month, and for renters on leases it was $1,400 a month, of which on average half went to rent.

Homelessness is a national crisis, and all too pervasive in California, where an estimated 171,000 people or 30% of all homeless people in the U.S. are homeless. Political leaders are divided over how to address the crisis, with some, including Democratic Gov. Gavin Newsom, favoring tent encampment sweeps and a tough-love approach toward those with mental health and addiction issues.

It it not groundbreaking news that the states exorbitant housing costs are a major driver behind homelessness, but researchers at the UCSFs Benioff Homelessness and Housing Initiative hope that the study will strengthen public support for policies that focus on offering housing and emergency rental assistance rather than policies emphasizing punishment or stigma.

People are homeless because their rent is too high. And their options are too few. And they have no cushion, said Dr. Margot Kushel, initiative director and lead investigator. And it really makes you wonder how different things would look if we could solve that underlying problem.

Kushels team surveyed nearly 3,200 adults around California, and followed up to conduct in-depth interviews with 365 people, between October 2021 and November 2022.

The study found that Black people made up 26% of the homeless population in a state where they are only 6% of the general population. About 90% of participants were living in California when they became homeless. Half reported an inability to work due to age, health or disability. The median length of homelessness was a little under two years.

More than a third of adults surveyed met the criteria for chronic homelessness, meaning they had a disabling condition and were homeless for at least 1 year or were homeless four times in the previous three years totaling more than 12 months.

In Los Angeles in 2015, Sage Johnsons mother was evicted from their apartment when she was unable to meet rent that had increased to $1,200. In disability pay, she received about $1,340 a month. She bounced around, from LAs notorious Skid Row to various convalescent homes while her daughter lived at a shelter.

Later, Johnson, 28, was able to place her mother in a home, where she stayed for about two years. In 2018 though, her mother died from a debilitating stroke.

Johnson, who now has stable housing, wishes she could have done more.

But in the end, she did have a bed. She was inside. She didnt have any more strokes outside. And she was able to regenerate and rejuvenate and restore some of her life while in the convalescent home, said Johnson, a co-chair for one of the studys advisory boards.

Among study participants, substance abuse and issues with mental health were common and predated becoming homeless. Of those surveyed, 45% reported current, regular use of cocaine, amphetamines and opioids or heavy episodic drinking. Participants described how heavy substance use contributed to losing their homes, but also how methamphetamine usage allowed them to stay alert to protect themselves from assault or theft.

Nearly half of the adults surveyed were not on a lease in the six months prior to becoming homeless, and had likely moved in with family or friends, contributing to rent when they could. Nearly a quarter cited conflict among housemates, desire for more space or not wanting to impose any longer on family and friends as primary reasons they left.

On average, people surveyed who were not on leases received only one day of warning before needing to move out.

Among people on rental lease agreements, more than 20% cited income loss or reduction as the primary reason they lost housing. So it wasnt so much that their housing costs increased, its that they could no longer keep up with it, said Kushel.

California ranks as the most unaffordable state when it comes to housing, according to an annual report by the National Low Income Housing Coalition. A person earning an hourly minimum wage of $15.50 would have to work nearly 90 hours a week to afford the statewide average for a modest one-bedroom rental, which is nearly $1,800 a month, the coalition states.

The study was requested by Newsoms administration, which has made addressing homelessness a priority, but the state did not fund it so didnt play a role in analyzing data or interpreting the findings.

The report makes many recommendations, including deep expansion of rental assistance and pilot programs to facilitate shared housing for people seeking to get out of homelessness and a rental stipend program for people living temporarily with family or friends.

Johnson said she hopes the public will find the reports findings to be evidence that tax dollars are being put to good use in social safety net spending. She also hopes that people will support robust mental health and addiction treatment services along with affordable housing options.

I dont want to set anyone up for failure, she said. And Im sure many of my peers can agree that folks need time to practice going back to, like, regular society life.

Put a well-known vaccine scientist, a controversial podcast host, an anti-vaccine presidential candidate, and a couple of billionaires in a roomA.K.A a Twitter threadwhat could possibly go wrong? 

Over the weekend, Dr. Peter Hotez, the co-director of the Texas Childrens Center for Vaccine Development (CVD) and author of the forthcoming book Preventing the Next Pandemic: Vaccine Diplomacy in a Time of Anti-science tweeted a Vice article titled Spotify Has Stopped Even Sort of Trying to Stem Joe Rogans Vaccine Misinformation. It came after podcast host Joe Rogan brought presidential candidate Robert F. Kennedy Jr. on his show who vocalized his anti-vaccine stance. 

Hotez called the podcast interview nonsense and shared that he received attacks on Twitter as a result. 

The conversation brewed a storm, to say the least. After Hotez denied an immediate offer from Rogan of $100,000 to the charity of his choice to debate RFK Jr. in real time on his show, Twitter CEO Elon Musk tweeted, Hes afraid of a public debate, because he knows hes wrong.

But Hotez says he is willing to talk about his research on Rogans show, tweeting back, Joe, you have my cell, my email. Im always willing to speak with you. But he did not agree to a debate format outright. The onslaught of online attacks from Americas richest man and anti-vaxxers alike accusing Hotez of being a fraud and a liar, and benefiting off of big pharma, prompted Mark Cuban to wade in among other prominent names and a slew of medical professionals. 

 Trying to bully Dr Hotez is ridiculous, Mark Cuban tweeted.

Misinformation vs. scientists 

The mess brings into question how the social platform functions as an additive to scientists who share medical information. And more, the heated exchange probes whether or not scientists and doctors feel safe speaking out on Twitter.

Hotez shared on the platform how people targeted him outside of the internets walls. 

Ugh I just was stalked in front of my home by a couple of antivaxers taunting me to debate RFKJr, tweeted Hotez, who told Axios the platform has become more friendly to misinformation and anti-vaccine views as part of an anti-science movement.

Im still hoping to remain on Twitter, but well see how things go. This was and should be an important outlet for scientists, although far more challenging in its new form, Hotez tweeted Tuesday Morning.

Other scientists who have prominent Twitter followings say they are skeptical of how the platform fosters an environment conducive to their work. 

I too have grappled with leaving Twitter. Multiple times Ive needed to take breaks to step away from the vile rhetoric & misinformation, Dr. Scott Hadland, the chief of adolescent medicine at Mass General who has over 48K followers, tweeted. Many close colleagues have already left. This place can be fixed & @Twitter should do it before its too late. This tweet alone garnered personal online attacks. 

Bertalan Meskó, Ph.D., the director of The Medical Futurist, says he has used Twitter for over a decadeoften sharing research on digital health technology. Even with the same following of over 85K, he writes to Fortune that he feels he has reached fewer people. Still, he doesnt want to concede to the noise. 

Social media platforms come and go, and even those that stay change a lot, he says. Ill use as many relevant platforms as possible, and Ill finetune the formats of my messages based on how platforms change, but neither platform is more important than the others. 

Charitable giving in the United States declined in 2022 only the fourth time in four decades that donations did not increase year over year according to the Giving USA report released Tuesday.

Total giving fell 3.4% in 2022 to $499.3 billion in current dollars, a drop of 10.5% when adjusted for inflation. The decline comes at a time when many nonprofits, especially ones providing services to those in need, report an increase in requests for help.

However, Josh Birkholz, chairman of the Giving USA Foundation, which publishes the report and provides data and insights about donation trends, said the results are actually much better than they could have been considering the tough economic climate of late 2022.

I go back and forth on whether its encouraging or discouraging, Birkholz told The Associated Press in an interview. There was a 20% to 25% decline in the stock market and an 8% inflation rate, but Americans still gave nearly a half trillion dollars.

Those 2022 donations came after two record-setting years for charitable giving, driven by the unprecedented needs of the COVID-19 pandemic, said Una Osili, associate dean for research and international programs at the Lilly Family School of Philanthropy at Indiana University and the Giving USA reports lead researcher. Its a sign of continued generosity, though there are some areas of concern.

At the beginning of the 21st century, two thirds of Americans gave, Osili said. Today, that is down to under 50% for the first time. So giving has grown, but fewer people are participating.

The downturn in giving has led to issues at Community Help in Park Slope, better known as CHiPS, as it has in many charities across the country. The Brooklyn, New York, nonprofit operates a soup kitchen and food pantry, as well as supporting single mothers and their infants.

We saw inflation rise and, with that, we saw more working class individuals on our lines, said Shanice Brown, CHiPS development director. Donations declined and donated food as well because as the price of things increase, people need more and so they donate less.

CHiPS issues are compounded by the number of asylum seekers that are currently housed near the charity in Brooklyn. While CHiPS was providing 275 warm meals a day at this time last year, these days it is offering more than 400 meals daily. And sometimes, they simply run out of food.

When we run out of hot meals, we still provide sandwiches, said Brown, who has been collaborating with other nonprofits and food suppliers to try to make ends meet. Anyone who comes to our door walks away with something.

Even large-scale nonprofits have had to come up with new solutions to battle inflations effects on their resources.

Jared Perry, chief revenue officer at Make-A-Wish Foundation of America, said that while donations to the foundation, which grants the wishes of children fighting critical illnesses, were up slightly in 2022, they are currently declining in some areas this year. And those drops come while Make-A-Wish copes with increased costs for travel, which is involved in about 75% of the wishes they grant.

I think weve seen a 37% increase in rental car prices and that translates to a cost we have to bear, said Perry, adding that Make-A-Wish has stepped up calls for supporters to donate their airline miles and hotel points in order to help stretch its funding. The foundation has also turned to partners in the travel industry for more help.

The need, Perry said, is also an opportunity for Make-A-Wish and other nonprofits to engage individual donors and appeal to them for help. The message were going to continue to send out is: There are easy ways for people to get to get involved with Make-A-Wish, whether that be through volunteering or certainly by donating, he said. For every wish that were granting, theres another wish waiting.

Jon Bergdoll, associate director of data partnerships at the Lilly Family School of Philanthropy at Indiana University and the lead analyst for the Giving USA report, said the long-running trend of dollars up, donors down in philanthropy offers potential growth for nonprofits who can engage those currently not giving.

Decision makers for donations are not mom and pop donors, theyre wealthy individuals, Bergdoll said. That is indicative of where the money is coming from now versus 30 or 40 years ago.

According to the Giving USA report, 64% of donations in 2022 came from individual donors, 21% from foundations, 9% from bequests, generally through a will or estate plan, and 6% from corporations. In 2022, corporations donated 0.9% of their pre-tax profits in the United States, though Bergdoll said the report does not track whether multi-national corporations donated more in other countries.

For CHiPS, they are simply hoping for help wherever they can find it. Brown said many foundations have told her they are not accepting new grantees this year because of the economy and other foundations that donated in 2020 and 2021 are saying, Dont ask us again until 2024.

People have less, so theyre concerned about themselves and thats understandable, Brown said. But there are so many ways the community can help.

_____

Associated Press coverage of philanthropy and nonprofits receives support through the APs collaboration with The Conversation US, with funding from Lilly Endowment Inc. The AP is solely responsible for this content. For all of APs philanthropy coverage, visit https://apnews.com/hub/philanthropy.

The Trillion Dollar Club is getting so ritzy, its membership fees climbing to such exorbitant heights, that youre better off shunning its glamorous sheen and playing your money games on cheaper courses.

The shares of companies in this golden group of five U.S. tech mega-stocks worth over $1 trillion, as well as two recently deposed members on the verge of regaining their valet parking passes, keep getting pricier and pricier versus the rest of the market. In the process, these stocks have come to account for a bigger and biggerand now dangerously oversizedshare of the S&P 500. In the broader markets latest surge, from mid-May to mid-June, the Club members again grew far faster than the benchmark indexwhich means that countless investors have more of their wealth than ever tied up in these stocks.

The Clubs five official, thirteen-figure-market-cap roster famously comprises Apple, Microsoft, Google parent Alphabet, Amazon, and new entrant Nvidia. For this analysis, Ill add two former members that follow the clubs dynamics so closely they could still be wearing the embossed blazers: Tesla and Meta Platforms, formerly Facebook. Well nickname the expanded cast the Trillion Club-Plus.

Investing history shows time and again that companies whose shares are pricey relative to the market eventually sink back to earth. So youd think that folks and funds would be cycling out of these mostly mature tech superstars, which now offer half the earnings for every dollar invested as the hundreds of other big caps outside the manicured hedges. But the Club-Plus keeps catching booster rocket after booster rocket in an ascent driven more by momentum and hopes for the future of A.I. than what will really matterits members ability to hit the increasingly lofty earnings targets implied by their stock prices.

The seven stocks are a varied bunch, and some, such as Nvidia, Amazon and Tesla, look much more extravagantly valued than an Apple or Google. Put simply, if you own an index fund or ETF that tracks the S&P 500, the Trillion Club-Plus practically synchronized takeoff means that a bigger and bigger share of your money has been going into a few huge, extremely expensive stocks. If youre considering any cap-weighted vehicle that holds a sampling of S&P big names, youll likely face the same problem.

And that problem could become a thorny one. The share prices of companies that depend heavily on achieving big profit growth far into the future are extremely vulnerable to a rapid rise in interest rates, which is exactly the phenomenon currently darkening Americas economic outlook. Hence, the Trillion Club-Plus is at risk of a reversal of its fortunes just as swift and potent as the groups meteoric riseand such a turnabout could mostly erase the S&P 500s big gains for 2023.

The Trillion Club-Plus led the latest big rally

In the month that ended June 15, our club of seven once again far outraced the overall S&P, and in the process, lifted its weight in the index. On May 15, the Club sported a combined market cap of $9.45 trillion. Over the following 30 days, it achieved a combined moonshot. Google posted the lowest gain at 6.5%, while Apple grew 8.1%, Microsoft 12%, Amazon 13.5%, and Meta 19.2%. Nvidia and Tesla reigned, advancing 50% and 55% respectively. All told, the Trillion seven added a staggering $1.58 trillion to their all-in valuation over those four weeks, or nearly 17%, lifting the total to just over $11 trillion.

Since the Clubs stock prices grew almost two-and-a-half times as fast as the S&Ps overall 7% increase in that 30-day span, their share of the indexs across-the-board value waxed from 26% to 28%.

The investing trend that has dominated 2023

That two-point gain over just four weeks contributed to an already sizable increase in the Clubs power over the S&P 500. At the start of 2023, the seven tech titans sported a total market cap of $7.22 trillion, accounting for 21% of the index. Since then, every club mate has taken off at speeds that dwarfed the non-memberships pace. Amazon registered the smallest gain at 23%, while Alphabet jumped 26%, Apple 29%, Microsoft 41%, Tesla 48%, Meta 89%, and Nvidia 118%. By reaching a combined worth of over $11 trillion by mid-June, the Trillion Club-Plus has added $3.81 trillion in market cap in five-and-a-half months. Think of the Club as a single stock that gained 53% in that interlude. The performance of our Trillion Club-Plus, Inc. has accounted for 75% of the big caps total increase of $5.1 trillion, or 11.5 percentage points of the indexs 15.3% rise year-to-date.

So far this year, the Clubs moonshot has swelled its standing in the S&P by a staggering seven points, from 21% to 28%. And thats the problem.

The Clubs takeoff made it much, much more expensive

The Clubs extraordinary run so far this year stretched the distance between this gilded enclave and the more or less modestly valued neighborhoods occupied by the rest of the S&P 500. In 2022, the group earned a total of $260 billion, Apple proving the largest profit spinner at just under $100 billion. Hence the groups overall price-to-earnings multiple when the year began, at its then $7.22 trillion valuation, was 28.3. Even then, that was a big number, representing a more than 25% premium to the overall S&P.

Weve seen only one additional quarter of earnings since the start of 2023, so it isnt surprising that the Clubs total profits for the past four reporting periods are little changed. In fact, their trailing 12-month earnings are down slightly at $256 billion. The Clubs market cap explosion of 53% this year hiked its multiple from 28.3 to a towering 43. Thats the sort of premium awarded to shooting stars at the beginning of their biggest growth phases. The only member of the Club offering a sub-30 PE is Alphabet at 28. Apple, Microsoft and Meta are in the 30s, and Tesla, Nvidia, and Amazon hover at 75, 306, and 222 respectively. At present, the seven are selling at 82% over the S&Ps 500s PE of 23.5, and more than double the 20 multiple for the indexs non-members.

What happens to the S&P if these high-flyers fall back to earth?

As the Club has become a bigger and bigger part of the index, its gains have supercharged the S&Ps advance. But the lopsided mechanics also work in the other direction. If investors suddenly change their minds, and deem these seven players highly overvalued, the decline in their shares will magnify the adjustment in the overall S&P 500much more now that they account for a bloated 28% of the indexs market cap. Lets say investors decide to reprice the group at the still formidable PE of 28.3 that they carried at the close of 2022. If that happens, over $3.8 trillion would disappear from the indexs total market cap of $39.2 trillion, causing a fall of 9.5%. That hit would scuttle nearly two-thirds of the indexs 15% gain so far in 2023.

In other words, the Club has grown so big in the S&P that a move back to what investors thought its members were worth at the end of last yearalready a high valuationwould kill all but a few points of the big cap indexs impressive gains for this year. As a group, the Trillion Club-Plus Club is looking fabulously overpriced. Theyve been the gorilla thats drivenyou might say bulliedthe S&P back into bull market territory. A reset to anything resembling the Clubs fair value means the rally mainly carried on a mere seven shoulders will prove short-lived indeed.

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