To The Moon

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).

Learnings and conclusions from this week’s charts: $S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ $Dow Jones(.DJI)$ $iShares Russell 2000 ETF(IWM)$ The equal-weighted S&P500 continues to make new highs. The cap-weighted S&P500 remains stuck (thanks to “lag-7”). The S&P500 Value index also chalked up new highs last week. Micro caps and financials are putting in promising price action. The USA, Korea, and China have one bubbly thing in common. Overall, the bull-market-broadening and bull

$Apple(AAPL)$ $Microsoft(MSFT)$ $Alphabet(GOOG)$ $Amazon.com(AMZN)$ $Meta Platforms, Inc.(META)$ $NVIDIA(NVDA)$ $Tesla Motors(TSLA)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ 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

Here's the topics & takeaways from the latest Weekly Macro Themes report: 1. Policy Pulse: another global policy pivot is underway (from previous rate cuts to now increasing rate hikes), this will incrementally tilt risks to the downside for risk assets as the pivot progresses. 2. Treasuries: lean bullish on treasuries given compelling contrarian setup (cheap valuations, record low investor allocations, consensus bearish sentiment), but macro headwinds for bonds continue to linger. 3. REITs: somewhat constructive on REITs as they approach a potential breakout from consensus bearish sentiment and very light investor allocations, but ideally need to see lower bond yields to assist. 4. Bitcoin: remain low-conviction bullish as Bitcoin hangs onto support, with sentiment and seasonality sti

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

Learnings and conclusions from this week’s charts: Mag-7 has been underperforming vs the “S&P493”. Valuations are high because profitability is high (profitability is cyclical). Investor cash allocations are very low (which is a warning sign for stocks). Margin debt acceleration has reached warning levels. Stockmarket seasonality turns negative from July-Oct. Overall, we are witnessing continued bull-market-broadening and bullish rotation as the S&P500 ex-Mag-7 makes new highs and the equal vs cap weight relative performance line ticks up. But there are a few warning signs to keep in mind and the bear case would be that Mag-7 underperformance turns into something sinister… $S&P 500(.SPX)$ $SPDR S&a

Everyone knows valuations are Expensive right now. But here's something less obvious. This chart shows how the S&P500 $S&P 500(.SPX)$ has traded around major valuation extreme peaks and troughs over the past 100 years. Peaks deceive through a smooth steady ride higher, and have a habit of making sharp turns. Bottoms see prices fall slowly at first then all of a sudden. 50% of S&P500 corporate capex is done by Tech companies. No other sector comes close. Is this sustainable? "What's the Best that could happen?"

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