Despite data showing that the economy is doing well, a large block of Americans are unsatisfied. Why?

Economic growth has been steady, unemployment is relatively low, and the stock market is flirting with all-time highs. Yet, 68% of Americans rated economic conditions as fair or poor in a recent survey. Meanwhile, just 32% said the economy was good or excellent.

The problem isn’t the overall economy, but different perspectives based on one’s position in the economy. An investor with a substantial stock portfolio considers conditions to be pretty good because their personal circumstances are likely favorable. Someone who doesn’t own stocks might not share that rosy point of view.

As a result, there are really two stock markets. This has also been true in recent years as large-cap stocks held up much better than small- and mid-cap stocks in the face of higher interest rates.

This year, the bifurcation is between AI (Artificial Intelligence) or not AI. Companies deeply involved in AI have seen their stocks soar, while those not involved in AI have frequently languished. Many AI companies are at the very top of the market capitalization range with chipmaker Nvidia and software maker Microsoft each at a 7% weighting in the S&P 500. The top six companies, all tech stocks, make up an unprecedented 30% of the index and carry as much weight as the 410 least-impactful large-cap companies combined. At recent levels, the S&P was up 15.8% year-to-date. Yet, the “equal-weighted” S&P is up just 5.2%. Both indexes consist of the same companies with the only difference being whether the largest companies are weighted differently or the same as the others.

Questions such as “How is the economy doing?” or “What have stock market returns looked like?” are much more nuanced than they first appear and depend heavily on one’s perspective. Don’t robotically follow the crowd that says interest rates can’t come down; the underlying facts are inconclusive, no matter what headlines say.

Parts of the market appear to be overheated, but many sectors and companies that haven’t kept up with the AI mania appear to offer good growth and reasonable value for investors focused on the long term. Future success is more likely if one follows the facts rather than just the headlines.

The companies profiled in this month's Investor Advisory Service both offer growth and good value at their current prices. Our first pick in the issue is a member of the Magnificent Seven that offers good return potential despite its price runup. Our second selection is a midsized internet business services company that is using its technological advantages to drive excellent growth.

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The commentary is excerpted from the issue of the Investor Advisory Service newsletter published at the end of June. To receive commentary like this in a more timely matter and receive actionable stock ideas each and every month, subscribe today. The Investor Advisory Service stock newsletter was named to the Hulbert Investment Newsletter Honor Roll for the 14th consecutive year for outperforming every up and down market cycle since 2007

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