Financial News vs. Noise
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Tough week for the markets. The supposed culprit was talk that there would be tougher restrictions on semi conductor sales to China, but things were weakening before that. Then there was this on Friday.
Tech Took Down the World on Friday. Is the Market Next?-Barron’s
Not sure if there will be any further ramifications this week. CRWD is down another 4% at the moment.
This week we see 23% of the S&Ps market cap announce earnings (GOOGL and TSLA are the highlights), GDP, and PCE.
Few investors saw the shift coming, and many are puzzled by what is behind it: Changing forecasts for Federal Reserve interest-rate cuts? Expectations that Donald Trump will return to the White House? A technology trade that grew precariously crowded?
How does this take you by surprise? Market’s had gotten historically narrow, something had to give.
Markets were overbought and traders took any excuse they could find. So we are not in a great looking spot. The uptrend in SPY has clearly broken. SPY broke below the 10 day MA and now the 20 day EMA.
QQQs are same, but a bit worse.
The “rotation” into Dow names fizzled.
As did small caps.
Rates popped on Friday, but they are still clearly in a downtrend.
Moves like this suck, but they are necessary and part of the game. Nothing can move up in a straight line. That’s why I love running a long/short portfolio. At this point I think this is just a normal sell off as we are back into Fed easing mode. Just like you didn’t want to fight the Fed in 2022 when they were tightening, you don’t want to fight them now that easing is about to start.
We took off another slew of shorts on Friday and plan to take off some more today. Our long watchlist is small—-TSLA, MPWR, KLAC, ANET, and TER. You will notice 3 semi names along with ANET, which is related.
Chip Stocks Have Gotten Hammered. Why the Damage Might Be Overdone.-Barron’s
Pushing them down: A weaker-than-expected inflation print that investors bet would give the Federal Reserve cover to cut interest rates in September; comments by former President Donald Trump, who said that he would force Taiwan to pay for the protection it receives from the U.S.; and news this week that the Biden Administration floated the possibility of stepped-up restrictions on certain semiconductor equipment makers’ sales to China.
Still, enough of the theoretical damage to semiconductor companies’ profits might be reflected in the stocks.
Nothing on my individual name short watchlist for the second straight day.
This is the wrong Trump trade. The Trump Trade Is Back. But Did It Ever Work? Investors are buying small-cap and ‘old economy’ stocks in a way reminiscent of 2016. It won’t necessarily pan out.-WSJ
Until late last week, 2024 was all about the rise of megacorporations linked to artificial intelligence. Then the Russell 2000 index of small-capitalization stocks suddenly went from being roughly flat year-to-date to up 10% Wednesday, when it recorded its strongest weekly outperformance on record against the Russell 1000, which contains larger firms. At the same time, the technology-heavy Nasdaq had its largest one-day percentage decline since December 2022, even as cheaper “value” stocks rebounded.
That’s not the “Trump Trade”, that’s the market broadening out from historic narrowness. The Trump Trade is DJT, which you can trade but don’t own. Then it’s the law and order stocks like GEO, CXW, AXON, SWBI, etc. You could also throw in short clean energy, but I would be careful as AI is going to need so much power it won’t matter where it comes from. I do not think Biden dropping out is a positive for Trump and we could see a bit of an unwind on some of the Trump trade.
From BTIG’s Washington analyst…..
How We Are Thinking About Harris. On the one hand, Harris is 22 years younger than Biden and does not have the same cognitive concerns that ultimately ended Biden’s campaign. From a polling perspective, she has fared relatively better than Biden in a couple swing state polls, but campaign contacts are far more excited with polling suggesting that she could perform well with women and independents. On the other hand, there is concern about how she will fare in the spotlight given the missteps she made in her 2020 presidential campaign and Republicans will tie her to the Biden administration’s record on issues such as inflation and immigration. From a polling perspective, the next few weeks of surveys could be noisy, but it is important to note that Biden’s net favorability of -17 points compares with Harris’ of -14 points. All said, Harris should be viewed as a stronger candidate than Biden, but she carries her own political baggage. In talking with contacts, there is a recognition that Harris is far from a perfect candidate, but there is optimism given her capacity to spar with Trump and the fact that Biden’s exit has led to a surge in campaign donations.
Trump Trade Unwind? With a new Democratic presidential challenger expected, we could see a reversal in some market moves linked to the “Trump Trade.” This is understandable as markets will be forced to reassess the odds of Trump winning without knowing his official challenger. Furthermore, we believe that Biden exiting leaves the House as more of a toss up than lean Republican. With that being said, we continue to view Trump as the slight favorite and note that beneficiaries of a second Trump administration are based on administrative shifts rather than legislative changes. These beneficiaries include private prisons, digital assets, and firms exposed to an uptick in M&A. Trump’s trade policy would likely be largely the same in a divided government scenario as well. We continue to expect a punt and extension of most of the $4.6T in expiring tax provisions, but as a general matter spending should be relatively easier in a divided government scenario.
Your 60/40 portfolio isn’t safe because it’s a stupid idea. Your 60/40 Portfolio Isn’t Safe. Inflation Is the Reason.-Barron’s
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Matthew Tuttle is the Chief Executive Officer and Chief Investment Officer of Tuttle Capital Management, LLC.
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