I sent a survey around yesterday asking what people think will be the biggest surprise for investors in H2 —and so far the top-voted candidate is “AI Bubble Burst”. Looking at some of the recent price action (e.g. the KOSPI is down -20% off the peak, the US SOX putting in a major topping pattern, Japan’s Softbank down -33%), I think they might be onto something. Which brings us to this week’s chart. It’s an update of the US Semiconductors market cap weight chart, which has pulled back from record highs. When I last featured this chart I mused: “semiconductors are in the bubble phase of the bull market (which is dangerous for both bulls and bears alike!)” That remains true, and the danger is that we are in the early stages of a bubble burst (they start with initial weakness; slowly at first

In terms of upsides and bullish-rotations, one area making big moves is small caps. After retesting its big breakout earlier this year small caps have had a strong run. And as previously outlined, small caps are trading on cheap valuations vs history (with good relative value vs bonds and vs large caps too). Thanks in part to passive index investing and the primacy of big tech, small caps have become a neglected part of the market e.g. ETF market share (implied allocations) and rolling net-fund-flows for small caps are ticking up off record lows. That is a classic contrarian bullish signal. On that basis, along with cheap valuations and bullish technicals, small caps likely have plenty of room to run from here (and offer a bright spot amongst the bearish banter).

$Apple(AAPL)$ $Microsoft(MSFT)$ $Alphabet(GOOG)$ $Amazon.com(AMZN)$ $Meta Platforms, Inc.(META)$ $NVIDIA(NVDA)$ $Tesla Motors(TSLA)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ Learnings and conclusions from this week’s charts: Mag-7 has become Lag-7 (almost -20% performance gap). Across a number of indicators valuations look expensive. Strong earnings expectations are supporting high valuations. Tech stocks have becom

This week’s chart pretty much speaks for itself (+has just made a new all-time high). To clarify, what we are looking at here is the estimated annualized compound growth rate expected by sell-side analysts over a three to five-year horizon aggregated for the S&P500 $S&P 500(.SPX)$ . i.e. consensus earnings growth expectations. Or as I like to call it: Wall Street analyst sentiment. And like all good sentiment indicators there are elements of truth and elements of emotion all mixed up in it. In boom times euphoria takes hold and analysts raise their estimates as stock prices punch higher, new paradigm narratives take hold, and ultimately expectations end up overestimating even the best fundamentals. In doom times pessimism reigns, and analy

$S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ $Dow Jones(.DJI)$ Similar to what we saw with investor allocations to cash probing the lows, investors in aggregate are running record low allocations to treasuries. You can see why in the chart below, with stocks having had a dream run while bonds have had a disastrous run. But you can also see something else in this chart. Both series look cyclical —one is in the middle of an upcycle, the other in the middle of a downcycle, and the next steps seem logical. The key takeaway is that investors

From a valuation perspective this market is divided into the Bigs (top 100) and the Big-Nots (everyone else). If you’re big you attract all the flows, have a much lower cost of capital (aka very high valuations), you suck up a lot of small companies through M&A, and to be fair if you got big in the first place you probably have pretty decent earnings and growth. If you’re small you’re off the radar, under-covered, under-valued, under-performing and probably underestimated. And even if you’re large —but not the largest, you still trade at a discount to the largest companies. As alluded, this is partly selection effects (successful companies get big), but also reinforced by the relentless rise of passive/index investing. But where things are sitting now is what you would call extreme. An

This week’s chart pretty much speaks for itself (+has just made a new all-time high). To clarify, what we are looking at here is the estimated annualized compound growth rate expected by sell-side analysts over a three to five-year horizon aggregated for the S&P500 $S&P 500(.SPX)$ . i.e. consensus earnings growth expectations. Or as I like to call it: Wall Street analyst sentiment. And like all good sentiment indicators there are elements of truth and elements of emotion all mixed up in it. In boom times euphoria takes hold and analysts raise their estimates as stock prices punch higher, new paradigm narratives take hold, and ultimately expectations end up overestimating even the best fundamentals. In doom times pessimism reigns, and analy

Today’s chart is one for tomorrow’s history books. It shows US households running the highest allocation to equities on record (and [as a result] the stockmarket trading at record high valuations). This is the type of shift you see only once in a generation, and it means a fundamental change in market structure with significant implications for the economy, politics, and the forward looking risk vs return outlook. But to be fair, with the S&P500 gaining more than 10x off the March 2009 lows — it’s an entirely understandable development! And even though it got this way for very logical reasons (strong earnings growth, waves of tech disruption, low interest rates, passive flows), it’s important to acknowledge that this is not normal and we live in highly unusual times. Investor confidenc

Here's the topics & takeaways from the latest Weekly Macro Themes report: 1. Inflation & Policy: inflation is rising and at risk of heading higher yet, thus central bankers are already pivoting to rate hikes; at the margin policy is becoming less supportive for risk assets. 2. Treasuries: wary of increasing headwinds and downside risks for bonds, but lack of a clear breakdown (yet) + cheap valuations and consensus bearishness means its still a (low-conviction) bullish bias. 3. Korea: Korean equities are at-risk following a near-vertical run (extreme expensive valuations and crowded positioning), particularly as policy is about to pivot to rate hikes. 4. China: remain bullish Chinese stocks given cheap relative value, lingering investor skepticism, and mixed but still bullish techni

For most investors the KOSPI is not the first index they check when they get to the desk — they probably don’t even think about Korea… But you should. In today’s note I wanted to highlight a topic from my latest Weekly Macro Themes report from Topdown Charts Professional. Basically, Korean equities have gone parabolic. (and yes, it’s AI again!) And if you thought the US market was getting top-heavy and concentrated you haven’t seen Korea. The top stock, $SK Hynix, Inc.(HXSCL)$ , is tracking near-30% of the MSCI South Korea index. Close in second is $Samsung Electronics Co., Ltd.(SSNLF)$ at about 25% of the index. Add in $SK SQUARE CO LTD.(SKSQF)$ and a few oth

While space sector stocks will almost certainly go through cycles of major boom and bust along the path (just look at the drawdowns in the chart above), I think that path is headed much higher in the longer arc of history. There’s a few reasons for that. While major progress has been made in the commercial space sector, it’s still early days. Only a handful of companies have a proven track record for launch services so far — and outside of launch, most companies are either focused on manufacturing and/or operating satellites (with much of the current use case being earth observation and telecommunications). In the longer run it’s natural to expect this to expand to an array of orbital activities such as zero-gravity manufacturing, orbital space habitats for a variety of use cases (from tou

Chart of the Week - Space Stocks While most people are focused on AI stocks and Big Tech, this equal-weighted basket of space stocks* is up 17x off the low point in late-2022. This reflects some major strides that several of these companies are making as the commercial space sector goes from dream to reality, but a key part of the more recent run-up is also down to anticipation of the SpaceX IPO. My personal view is the commercial space sector and space economy will one day be much larger than even some of today’s biggest themes and sectors, and has a lot of growth ahead. So I reckon this is something to pay more attention to if it’s not yet on your radar, and it’s probably still early days in this story… $Rocket Lab USA, Inc.(RKLB)$