An ETF for every craving, but many will be wrong for your investment diet 🍲
Plus a charted review of the macro crosscurrents 🔀
📈The stock market rallied to all-time highs, with the S&P 500 setting an intraday high of 6,508.23 and a closing high of 6,501.86 on Thursday. The index is now up 9.8% year-to-date. For more on the market, read: 15 charts to consider with the stock market at record highs 📊📈
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If a new product improves on something by making it cheaper or faster, then there will be demand for that product.
Exchange-traded funds (ETFs) have made it cheaper and faster to make trades that involve more than just buying or selling a single stock. In the 32 years since SPDR S&P 500 (SPY 0.00%↑ ) became the first U.S.-listed ETF, the industry has grown significantly, with approximately $12 trillion in assets under management today.
And according to Morningstar data (first reported by Bloomberg), there are now more ETFs listed on U.S. exchanges than there are individual stocks.
After I read Bloomberg’s article, I posted the chart above on X with the caption: “There are now more recipes than there are ingredients.“
The post was reposted a couple of hundred times, and it garnered a couple of hundred thousand views. It struck a chord.
On one side, some found the development to be alarming. How could there be more ETFs than there are individual stock tickers? This must be a bubble or some gross distortion that threatens to destabilize markets, right?
On the other side, some saw the news as nothing more than some random milestone in what’s been an inevitable trend. This is the view shared by all of the ETF experts I know.
“This is the correct take,” Dave Nadig, President and Director of Research for ETF.com, tweeted.
“Yes, massive product proliferation,” Nadig added in an email. “But there’s no real meaning to 4K vs 5K vs 10K ETFs trading. We've had >8000 mutual funds since the early 1990s.”
Eric Balchunas, Senior ETF Analyst for Bloomberg, offered his own analogy: “There are 12 notes and yet 100 million songs.”
Every investor has different needs and wants. And there are millions of investors. In response to this investor demand, the financial services industry has supplied almost every imaginable trading strategy with low-cost, tax-efficient ETFs.
Not all ETFs will fit your diet 🍱
To be clear, just because an ETF exists doesn’t mean it will be suitable for your portfolio. Everyone’s got their own tastes and dietary needs.
If you can’t stomach a lot of volatility, then maybe you shouldn’t be in leveraged single-stock ETFs. Similarly, not everyone can handle spicy food.
Perhaps a certain ETF is appropriate, but it shouldn’t dominate your portfolio. Tuna sashimi is tasty, but too much may lead to mercury poisoning.
Peanuts are one of the most beloved ingredients in the culinary world. But it’ll kill those who are allergic to it. I’m not sure if an ETF like that exists, but it may be coming.
By the way, just because ETFs offer a relatively low-cost way to trade doesn’t mean there aren’t active ETF managers offering strategies at a high cost. And many of these ETFs underperform their benchmarks. There are great restaurants worth paying up for. However, there are also plenty of TV chefs selling mediocre food at a high markup.
Check out my column in the Financial Times 📰
The fact that there are many ETFs is in itself not cause for alarm.
There are more poems than letters in the alphabet. There are more locker combinations than numbers on the lock. There are more chemical compounds than elements. There are more ways to fill out a March Madness bracket than teams. There are more recipes than ingredients.
There’s nothing remarkable about the fact that there are more ETFs than individual securities.
That said, there are some pitfalls.
The Financial Times invited me to write a column on the ups and downs of the ETF boom, including the issue of choice overload and the tax event that occurs when a fund closes. Many thanks to Tony Tassell for editing. And thanks to Strategas’ Todd Sohn and Morningstar’s Ben Johnson for providing color. You can read it here »
…Or go pick up a copy of the FT’s Weekend edition from your local news stand!
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More from TKer:
Review of the macro crosscurrents 🔀
There were several notable data points and macroeconomic developments since our last review:
🎈 Inflation heats up. The personal consumption expenditures (PCE) price index in July was up 2.6% from a year ago. The core PCE price index — the Federal Reserve’s preferred measure of inflation — was up 2.8% during the month. While it’s above the Fed’s 2% target, it remains near its lowest level since March 2021.
On a month-over-month basis, the core PCE price index was up 0.27%. If you annualized the rolling three-month or six-month figures, the core PCE price index was up 3.0%.
For more on inflation and the outlook for monetary policy, read: Fed Chair Powell: It's a 'challenging situation' ⚖️ and The other side of the Fed's inflation 'mistake' 🧐
🏭 Business investment activity improves. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — increased 1.1% to $76.4 billion in July.
Core capex orders are a leading indicator, meaning they foretell economic activity down the road.
For more on deteriorating economic metrics, read: We're at an economic tipping point ⚖️
🛍️ Consumer spending ticks higher. According to BEA data, personal consumption expenditures increased 0.5% month-over-month in July to a record annual rate of $20.80 trillion.
Adjusted for inflation, real personal consumption expenditures increased by 0.3%.
For more on consumer spending, read: We're at an economic tipping point ⚖️ and Americans have money, and they're spending it 🛍️
💳 Card spending data is holding up. From JPMorgan: “As of 22 Aug 2025, our Chase Consumer Card spending data (unadjusted) was 2.9% above the same day last year. Based on the Chase Consumer Card data through 22 Aug 2025, our estimate of the US Census August control measure of retail sales m/m is 0.32%.”
For discussion on how sales may be inflated due to tariffs, read: A BIG economic question right now 🤔
⛽️ Gas prices tick higher. From AAA: “A recent refinery issue has caused a surge in gas prices ahead of Labor Day weekend. The national average for a gallon of regular went up more than 7 cents this past week to $3.21 mainly due to flooding at BP Whiting Refinery in Indiana. The largest refinery in the Midwest shut down operations for several days following a severe thunderstorm. As a result, states in the Great Lakes region saw an increase in gas prices, but they may get some relief soon now that the refinery is back online. Overall, summer gas prices have remained steady and should trend downward as the fall season begins. But the incident in Whiting underscores the futility of predicting gas prices. Mother Nature and geopolitical events can suddenly and unexpectedly impact fuel prices.”
For more on energy prices, read: Higher oil prices meant something different in the past 🛢️
👎 Consumer confidence ticks lower. The Conference Board’s Consumer Confidence Index ticked 1.3 points lower in August. From the firm’s Stephanie Guichard: “The present situation and the expectation components both weakened. Notably, consumers’ appraisal of current job availability declined for the eighth consecutive month, but stronger views of current business conditions mitigated the retreat in the Present Situation Index. Meanwhile, pessimism about future job availability inched up and optimism about future income faded slightly. However, these were partly offset by stronger expectations for future business conditions.“
The University of Michigan’s August Surveys of Consumers echoed this deterioration in sentiment: “This month’s decrease was visible across groups by age, income, and stock wealth. Moreover, perceptions of many aspects of the economy slipped. Buying conditions for durable goods subsided to their lowest reading in a year, and current personal finances declined 7%, both due to heightened concerns about high prices. Expectations for business conditions and labor markets contracted in August as well.”
Relatively weak consumer sentiment readings appear to contradict relatively strong consumer spending data. For more on this contradiction, read: What consumers do > what consumers say 🙊 and We're taking that vacation whether we like it or not 🛫
👎 Consumers feel worse about the labor market. From The Conference Board’s August Consumer Confidence survey: “Consumers’ views of the labor market cooled further in August. 29.7% of consumers said jobs were ‘plentiful,’ down slightly from 29.9% in July. 20.0% of consumers said jobs were ‘hard to get,’ up from 18.9%.“
Many economists monitor the spread between these two percentages (a.k.a., the labor market differential), and it has been reflecting a cooling labor market.
For more on the labor market, read: The labor market is cooling 💼
💼 New unemployment claims tick lower, total ongoing claims remain elevated. Initial claims for unemployment benefits declined to 229,000 during the week ending Aug. 23, down from 234,000 the week prior. This metric remains at levels historically associated with economic growth.
Insured unemployment, which captures those who continue to claim unemployment benefits, declined to 1.954 million during the week ending Aug. 16. This metric is near its highest level since November 2021.
Low initial claims confirm that layoff activity remains low. Elevated continued claims confirm hiring activity is weakening. This dynamic warrants close attention, as it reflects a deteriorating labor market.
For more context, read: The hiring situation 🧩 and The labor market is cooling 💼
🏘️ Housing supply is rising. From BofA: “New housing demand remains sluggish, with lack of buyer urgency, job instability, and affordability challenges all cited by builders, according to BofA Global Research. Meanwhile, housing inventory is rising, and new home inventory hit its highest levels since 2007. This is also resulting in downward pressure on the prices of new homes relative to existing homes – the median new home price is now lower than the median existing home price. In turn, builders are pulling back on new home starts in many markets according to BofA Global Research, though some regions like the Midwest are holding up better than others.“
🏘️ New home sales tick lower. Sales of newly built homes declined 0.6% in July to an annualized rate of 652,000 units.
🏠 Home prices cool. According to the S&P CoreLogic Case-Shiller index, home prices were up 1.9% year-over-year in June but declined 0.3% month-over-month. From S&P Dow Jones Indices’ Nicholas Godec: “For the first time in years, home prices are failing to keep pace with broader inflation. From June 2024 to June 2025, the Consumer Price Index climbed 2.7%, substantially outpacing the 1.9% gain in national home prices. This reversal is historically significant: During the pandemic surge, home values were climbing at double-digit annual rates that far exceeded inflation, building substantial real wealth for homeowners. Now, American housing wealth has actually declined in inflation-adjusted terms over the past year—a notable erosion that reflects the market's new equilibrium.”
For more on housing, read: The U.S. housing market has gone cold 🥶
🏠 Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage stood at 6.56%, down from 6.58% last week. From Freddie Mac: “Mortgage rates are at a 10-month low. Purchase demand continues to rise on the back of lower rates and solid economic growth. Though many potential homebuyers still face affordability challenges, consistently lower rates may provide them with the impetus to enter the market.”
There are 147.9 million housing units in the U.S., of which 86.1 million are owner-occupied and about 39% are mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.
For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖
🏢 Offices remain relatively empty. From Kastle Systems: “Peak day office occupancy was 62.1% on Tuesday last week, up four tenths of a point from the previous week. Occupancy fell every day of the week in New York City, with a high on Tuesday of only 57.1%, down six full points from the prior week. In contrast, Austin reached a high of 80.4% on Tuesday, up 5.5 points from the week prior. The average low was 34% on Friday, up three tenths of a point from the previous week.”
For more on office occupancy, read: This stat about offices reminds us things are far from normal 🏢
📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 3.5% rate in Q3.
For more on GDP and the economy, read: 9 once-hot economic charts that cooled 📉 and We're at an economic tipping point ⚖️
Putting it all together 📋
🚨 The Trump administration’s pursuit of tariffs is disrupting global trade, with significant implications for the U.S. economy, corporate earnings, and the stock market. Until we get more clarity, here’s where things stand:
Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.
Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Job creation, although cooling, also remains positive, and the Federal Reserve — having resolved the inflation crisis — shifted its focus toward supporting the labor market.
But growth is cooling: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like excess job openings and core capex orders have faded. It has become harder to argue that growth is destiny.
Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.
Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.
Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.
Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.
Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.
For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »
Key insights about the stock market 📈
Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.
10 truths about the stock market 📈
The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.
The makeup of the S&P 500 is constantly changing 🔀
Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.
The key driver of stock prices: Earnings💰
For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.
Stomach-churning stock market sell-offs are normal🎢
Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.
How the stock market performed around recessions 📉📈
Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.
In the stock market, time pays ⏳
Since 1928, the S&P 500 generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.
What a strong dollar means for stocks 👑
While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.
Economy ≠ Stock Market 🤷♂️
The stock market sorta reflects the economy. But also, not really. The S&P 500 is more about the manufacture and sale of goods. U.S. GDP is more about providing services.
Stanley Druckenmiller's No. 1 piece of advice for novice investors 🧐
…you don't want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there's overcapacity and they're losing money. What about when they're losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it's going to be in 18 to 24 months as opposed to now. If you buy it now, you're buying into every single fad every single moment. Whereas if you envision the future, you're trying to imagine how that might be reflected differently in security prices.
Peter Lynch made a remarkably prescient market observation in 1994 🎯
Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That's all there is to it.
Warren Buffett's 'fourth law of motion' 📉
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
Most pros can’t beat the market 🥊
According to S&P Dow Jones Indices (SPDJI), 65% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2024. As you stretch the time horizon, the numbers get even more dismal. Over a three-year period, 85% underperformed. Over a 10-year period, 90% underperformed. And over a 20-year period, 92% underperformed. This 2023 performance follows 14 consecutive years in which the majority of fund managers in this category have lagged the index.
Proof that 'past performance is no guarantee of future results' 📊
Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, just 4.21% of all U.S. equity funds in the top half of performance during the first year were able to remain in the top during the four subsequent years. Only 2.42% of U.S. large-cap funds remained in the top half
SPDJI’s report also considered fund performance relative to their benchmarks over the past three years. Of 738 U.S. large-cap equity funds tracked by SPDJI, 50.68% beat the S&P 500 in 2022. Just 5.08% beat the S&P in the two years ending 2023. And only 2.14% beat the index in the three years ending in 2024.
The odds are stacked against stock pickers 🎲
Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 24% of the stocks in the S&P 500 outperformed the average stock’s return from 2000 to 2022. Over this period, the average return on an S&P 500 stock was 390%, while the median stock rose by just 93%.
