The top groups of tech companies ($COMPQ) are still growing around 4X more than the other listed companies, but that doesn’t mean they are sure-fire buy-and-hold stocks today.
In fact, there is a legitimate case that the gap between tech and the rest will narrow as we roll into 2025, making tech stocks marginally unattractive if a full-fledged rotation occurs.
I am not downplaying tech, but sometimes the sector needs a little breather or sideways correction.
Much of the over performance in 2024 has been breathtaking with the gem of the group Nvidia (NVDA).
I am not saying that there will be a non-tech Nvidia-like firm sprouting up from nothing in 2025, but the rate of stock acceleration could face some resistance in the tech sector.
That is why it is important not to chase big gains and wait for stocks to come to you as investors book profits to close the year.
There will be moments where you wish you waited.
Remember, much of tech’s success has already been priced into the stock, and looking out, they will need to deliver another bounty of alpha for shareholders to bid up the price even more.
That is certainly what Nvidia is doing as they impress and then reestablish a new higher goal.
The rally isn’t over, but readers will need to pick their spots.
Since peaking on July 10, big tech stocks have fallen 2%. That lags every major sector in the S&P 500, with the utilities, real estate, financial, and industrial groups jumping more than 10% and the broader index gaining 3.1% over the same span.
Microsoft faces concerns about its prospects in AI. Apple has seen early signs of tepid demand for its newest iPhones, although long-term optimism helped send the stock to a record last week. Amazon investors are worried about heavy capital spending eating into profits. And Alphabet has regulatory uncertainty as the US Justice Department investigates it for monopoly practices.
In the third quarter, Microsoft, Alphabet, Amazon, and Meta Platforms are projected to have poured $56 billion into capital expenditures, up 52% from the same period a year ago.
This is getting expensive, and investors want to know if the expenses are becoming too burdensome to the point that it doesn’t make economic sense.
Raising concerns about future profit margins was never a concern, but it suddenly is for tech investors looking down the road.
Top-line gains are starting to get offset by surging AI-related capital spending.
The reason for the optimism is fairly simple. For all the concerns, they continue to offer above-average profit growth, exposure to AI, strong capital returns, and less risk than other stock market sectors.
They are still attractive businesses with established business models, but at what price?
This earnings season will finally be the acid test to whether investors co-sign management’s vision to grow earnings in 2025.
The path is certainly much harder than in years past, and the goalpost continues to shrink.
Opportunities will present themselves as many companies might need a short-term haircut after earnings.
I still like the tech sector, but I would like it more if the expensive prices were reigned in.
For companies like Nvidia or Tesla, I don’t believe that will be possible, but the tier after that should offer optimal chances to pocket some high-quality names at better prices.
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The post-election trade is absolute fire now, and readers need to pay attention.
Silicon Valley has delivered what could amount to the mother of tech rallies into the end of 2024.
Look at the examples that have turned heads.
Electric vehicle (EV) company Tesla stock has gone absolutely parabolic with Elon Musk securing deep influence in the U.S. government for the next 4 years.
Part of the rally is also due to the increase in scarcity value from his social media platform X, which body-slammed traditional media avenues and convinced 75 million U.S. citizens to vote.
Musk could be tasked with “making recommendations for drastic reforms” aimed at the efficiency and performance of “the entire federal government”, Trump has said. This could grant Musk huge power over the agencies that regulate his and other tech companies.
Musk could be in charge with regulating – Apple, Google, Meta, Microsoft, and Amazon – which wield the data and processing power that shapes the social and economic lives of billions of people.
It was under Trump’s first presidency that the Justice Department began an investigation into Google, resulting in a case against the firm for suppressing competition.
Trump will probably take office with cases under way challenging the market power of several big tech firms, spearheaded by the anti-monopoly chair of the Federal Trade Commission, Lina Khan.
Many expect she will be fired. Yet Trump’s vice-president pick, JD Vance, has voiced support for aspects of her monopoly-busting approach.
Trump also thinks the tech giants give the US global clout at a time when AI is becoming a matter of national security.
“China is afraid of Google,” Trump said last month when he questioned whether a corporate split of Google could “destroy the company”.
Trump said he would “save TikTok” after a ruling that its Chinese owners must sell it if it is to continue in the US, but the trade-offs are everywhere.
In other areas, any Trump plan to cut incentives for EV manufacturers would be “an overall negative for the EV industry.
This would probably help Musk’s Tesla because its existing competitive advantage would be exaggerated if its rivals were hobbled. There are reports Trump may only tweak the subsidies rather than scrap them. If Trump’s trade tariffs limit imports of cheaper Chinese EVs, that would further help Musk.
Crypto-linked stocks in Coinbase, MicroStrategy, Riot Platforms, and MARA Holdings have jumped between 11% and 21%, participating in what is known as the post-election Trump trade.
I certainly expect a follow-through on the post-election trade, with money from the sidelines opting into the rally.
Not only that, retail traders have signaled they are participating in this broad rally as well.
The paradigm shift cannot be understated, and many changes will start to be visible as the new administration comes closer to taking over.
The high inflation of the last few years was painful for the bottom segment of the American population, and it will be interesting to see if the new government will discount them or start to redirect policy to them.
Either way, the more important policy decisions as it relates to big tech are regulation, corporate tax policy, tariffs, and the ease of doing business in the U.S.
Clearly, Trump has made it known he does value strong American tech companies, but I don’t believe they will be left untouched to do whatever they want.
In the short term, ride the rally to higher highs. Since the summer dip, I had a hunch that we would reverse to all-time high’s, and that is exactly where we find ourselves in the Nasdaq index.
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(MARKET OUTLOOK FOR THE WEEK AHEAD, or GOLDILOCKS ON STEROIDS, plus A KERFFUFLE IN PARIS),
(SPY), (FXI), ($COMPQ), (CCJ), (SLB), (OXY), (TSLA),
(TLT), (DHI), (NEM), (GLD), (TSLA)
The 6,000 targets for the S&P 500 are starting to go mainstream.
That was my forecast on January 1, back when everyone said I was nuts. The inflation rate is 2.2%, GDP growth is 3.0%, and interest rates are falling sharply, on their way to 3.0% by next summer.
Goldilocks is back, but this time she’s on steroids.
Also helping is that we are in the midst of a global interest rate decline. The US, Europe, China, and Australia are all cutting interest rates at the same time. Japan is the sole exception, which is on the verge of raising rates from 0.25%. All of this has a compounding effect on the health of the global economy.
Long-term market veterans like myself are amazed, astounded, and astonished that here we are on October 7, and instead of testing new lows for the year, we are punching through to new all-time highs. It’s proof that if you live long enough, you see everything.
Some five seconds after Jay Powell cut interest rates by a shocking 0.50%, everyone in the world suddenly realized they had way too much cash and not enough stocks. This is the kind of market you get from that realization, one that doesn’t breathe, take a break, have a correction, nor let in outsiders.
Further confusing matters is that we are witnessing the most contentious presidential elections in history. One party is proclaiming how great the US economy is, while the other is claiming it is the worst ever.
Those who believed the former description are having a great year. Those who bought the latter are having an awful one, with many owning no stocks at all. Fortunately, election concerns will disappear in four weeks not to return for four years. This is hugely positive for stocks.
But as all steroid users eventually find out, they cause impotence, sterility, and cancer, so enjoy while it lasts. That may be a mid-2025 or 2026 event.
China (FXI) came back with a vengeance. A 25% rise in a stock market in a week is not to be taken lightly, although a lot of this was short covering. Pouring gasoline on the fire is a government promise to buy $1 billion worth of stocks.
The question bedeviling all investors is whether China is a one-hit wonder or is it reborn again. I know that if this stimulus package doesn’t work, they have the resources to follow up with many more. But there is a bigger problem.
Chinese stock markets have not exactly done well since Xi Jinping came into power in 2013. In fact, they are exactly unchanged. During the same period, the (SPY) was up 308%, and the NASDAQ ($COMPQ) was up 525%. Many investors, like my old friend hedge fund legend Paul Tudor Jones, don’t want to touch China until Xi vacates the scene.
In any case, if you want to play China, the best risk-adjusted plays are not there but here in the US. Any US blue chip oil play (OXY) (SLB) would be a great choice, as China is the world’s largest oil consumer. Oil happens to be the cheapest and worst-performing sector in the stock market. And you don’t have to worry about a CEO getting rolled up in a carpet and disappearing for a few years, as has happened in the Middle Kingdom. At least here, you get all the US investor protections.
We closed out September with a blockbuster +10.28% profit. My 2024 year-to-date performance is at +44.97%.The S&P 500 (SPY) is up +19.92%so far in 2024. My trailing one-year return reached a nosebleed +62.77. That brings my 16-year total return to +721.60.My average annualized return has recovered to +52.32%.
With my Mad Hedge Market Timing Index at the 70 handles for the first time in five months, it was a good week to take profits. I sold longs in (CCJ) and (TSLA) and covered a short in (TLT). I stopped out of my long in (TLT) because of the blowout September Nonfarm Payroll Report on Friday.
This is what we’ve got left:
Risk On
(NEM) 10/$47-$50 call spread 10.00%
(TSLA) 10/$200-$210 call spread 10.00%
(DHI) 10/$165-$175 call spread 10.00%
Risk Off
NO POSITIONS 0.00%
Total Net Position 30.00%
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 58 of 77 trades have been profitable so far in 2024, and several of those losses were really break evens. Some 16 out of the last 17 trade alerts were profitable. That is a success rate of +75.32%.
Try beating that anywhere.
September was Great, butOctober is Looking Tough, right on the doorstep of the November 5 election and the market waiting for another interest rate cut on November 6. I think I’ll run out the positions I have into the October 18 options expirations, then wait for the market to come to me. I am up too much this year to take on needless risk.
Nonfarm Payroll Report Comes in Hot, as US employers added 254,000 jobs in September, topping economists’ estimates. The payroll gain, the biggest advance since March, was led by leisure and health care. The headline Unemployment Rate fell to a three-month low of 4.1%.
Interactive Brokers Starts US Election Forecast Trading on the heels of a federal court ruling in their favor. The following Forecast Contracts on US election results will be available:
*Will Kamala Harris win the US Presidential Election in 2024?
*Will Donald Trump win the US Presidential Election in 2024?
Plus a dozen other election outcomes. The opening bids were 49% for Harris and 50% for Trump. The port Strike is Settled with a 62% six-year settlement. The bananas were rotting. 54 container ships queued outside ports, risking shortages. The Strike cost the U.S. economy $5 billion/day. Shipping stocks tumble across Asia and Europe. Expect the US to move to full automation, where Europe went 30 years ago. EC Imposes 45% Tariffs on Chinese EVs in a desperate bid to save the local car industry. The Commission, which oversees the bloc's trade policy, has said it would counter what it sees as unfair Chinese subsidies after a year-long anti-subsidy investigation, but it also said on Friday it would continue talks with Beijing. Expect the same to follow in the US.
A possible compromise could be to set minimum sales prices. Hedge Funds Stampede into China on news that government agencies promised to pour $1 billion into local stock markets. Chinese equities saw the largest net buying ever from hedge funds last week, marking the most powerful weekly purchase on record, according to Goldman Sachs prime brokerage data.
Weekly Jobless Claims Climb to 225,000, not straying too far from a four-month low touched in the prior week. That is an increase from an upwardly-revised mark of 219,000 last week, data from the Labor Department showed on Thursday. Economists had anticipated 222,000. Will This Crisis Take Gold to $3,000? Almost certainly, yes, given the way the barbarous relic traded yesterday. Buy all gold (GLD), plays on dips, the metal, ETFs, futures, and miners. Tesla Bombs, with Q3 deliveries down flat, but the shares fell only 5%. Total deliveries came in at 462,890, while total production was 469,796. YOY Tesla is facing increased competitive pressure, especially in China, from companies like BYD and Geely, along with a new generation of automakers, including Li Auto and Nio. US Car Makers Get Slaughtered, with Stellantis stock falling by double digits after the Jeep maker cut its 2024 financial guidance, citing deteriorating industry dynamics and Chinese competition. The warning, amid similarly negative news from other car makers, also dragged down shares of (F) and (GM). Avoid the auto industry except for (TSLA). Nvidia Still has more to Run, so says Samantha McLemore, the founder and Chief Investment Officer of Patient Capital Management. Nvidia has been crushing every quarter for a year. CEOs want to make the decision to invest more [in AI] rather than getting caught behind. She doesn’t see the bull market ending soon. Current operating profit margins are 65%. Buy (NVDA) on dips.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy is decarbonizing, and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, October 7 at 8:30 AM EST, Used Car Prices are out On Tuesday, October 8 at 6:00 AM, the NFIB Business Optimism Index is released.
On Wednesday, October 9 at 11:00 PM, the Fed Minutes from the last meetingis printed.
On Thursday, October 10 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Consumer Price Index.
On Friday, October 11 at 8:30 AM EST, the Producer Price Index and the University of Michigan Consumer Price Index are announced. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, dentists find my mouth fascinating as it is like a tour of the world. I have gold inlays from Japan, cheap ceramic fillings from Britain’s National Health, and loads of American silver amalgam, which are now going out of style because of their mercury content.
But my front teeth are the most interesting as they were knocked out in a riot in Paris in 1968.
France was on fire that year. Riots on the city’s South Bank near Sorbonne University were a daily occurrence. A dozen blue police buses packed with riot police were permanently parked in front of the Notre Dame Cathedral, ready for a rapid response across the river. They did not pull their punches.
President Charles de Gaulle was in hiding at a French air base in Germany. Many compared the chaos to the modern-day equivalent of the French Revolution.
So, of course, I had to go.
This was back when there were five French francs to the US dollar, and you could live on a loaf of bread, a hunk of cheese, and a bottle of wine for a dollar a day. I was 16 years old.
The Paris Metro cost one franc. To save money, I camped out every night in the Parc des Buttes Chaumont, which had nice bridges to sleep under. When it rained, I visited the Louvre, taking advantage of my free student access. I got to know every corner. The French are great at castles….and museums.
To wash, I would jump in the Seine River every once in a while. But in those days, not many people in France took baths anyway.
I joined a massive protest one night, which originally began over the right of men to visit the women’s dorms at night. Then the police attacked. Demonstrators came equipped with crowbars and shovels to dig up heavy cobblestones dating to the 17th century to throw at the police, who then threw them back.
I got hit squarely in the mouth with an airborne projectile. My front teeth went flying, and I never found them. I managed to get temporary crowns, which lasted me until I got home. I carry a scar across my mouth to this day.
I visited the Left Bank again just before the pandemic hit in 2019. The streets were all paved with asphalt to make the cobblestones underneath inaccessible. I showed my kids the bridges I used to sleep under, but they were unimpressed.
But when I showed them the Mona Lisa at the Louvre, she was as enigmatic as ever. The kids couldn’t understand what the fuss was all about.
Everyone should have at least one Paris in 1968 in their lifetime. I’ve had many and am richer for it.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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Either way, accelerating inflation is coming back.
What does that mean for your tech portfolio ($COMPQ)?
It is complicated is the simple answer, and prices threaten to escalate because of the economic disruption ahead caused by the International Longshoremen's Association (ILA) protesting at 14 major ports along the East and Gulf coasts, halting container traffic from Maine to Texas.
This fight is first about pay but more about rejecting automation.
The action marks the first such shutdown in almost 50 years.
On Monday, USMX (United States Maritime Alliance) said it had increased its offer, which would raise wages by almost 50%, triple employers' contributions to pension plans, and strengthen health care options.
USMX has accused the union of refusing to bargain, filing a complaint with labor regulators that asked them to order the union back to the table.
The union wants to see per-hour pay increase by five dollars per year over the life of the six-year deal, which he estimated amounted to about 10% per year.
Imports in the US surged over the summer as many businesses took steps to rush shipments ahead of the strike.
She said more than 100,000 people could find themselves temporarily out of work as the impact of the stoppage spreads.
That would hit consumers and businesses which tend to rely on so-called "just-in-time" supply chains for goods, he added.
In case you are wondering, it takes an estimated 4-8 years to convert a port to full automation and between $500 million to $2B.
For reference, Shanghai’s Yangshan port took about 4-6 years from conception to full operations.
Yangshan’s port barely needs humans to operate, and it mostly down by a handful of IT guys behind computers.
They don’t need 50,000 people to do the job.
Clearly, the amount of job destruction is something that the longshoremen association is aware of and is actively fighting against modernization.
What it does mean is that Americans will pay higher prices.
Higher inflation will result in rising bond yield, which will strengthen the dollar.
Last time, the US dollar skyrocketed, tech prices rose during covid, and the rest of the equity market sank relative to big tech except energy stocks.
The USMX is fighting against any and all automation, shows the gaining power of unions in the United States.
Tech firms have been cutting staff in bunches and automating as fast as possible with AI.
With the possibilities of another covid-style shortage of many everyday goods, price inflation could return instantly, and that is very bad news for the S&P and Dow index.
The tech-heavy Nasdaq has proven that it fights calamities quite well and is durable in times of catastrophe, albeit if the electricity and keyboard are still functioning.
Ultimately, I see chaos happening and, at best, agreed on wage hikes that are not insignificant that will be passed on to the consumer.
From what I can understand, each time chaos rears its ugly head in the United States, tech somehow is unscathed in the aftermath and benefits.
If crazy wage increases are agreed on, get ready for another tech rally, and even if there is a long work stoppage, tech will gain over any other sector.
With interest rates dropping, it is hard not to see tech stocks experiencing a melt-up going into yearend, even if bond yields spike higher because of external events outside the realm of tech.
Automation is coming for all industries, and the longshoremen are trying to kick the can down the road at the expense of the end customer.
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