Joel Elconin – All The Headwinds Of Banking Issues, Fed Hikes, Debt Ceiling; How Are The Markets Holding Up So Well?
Joel Elconin, Co-Host of the Benzinga PreMarket Prep Show and Editor of the PreMarket Prep website joins us to discuss the choppy markets this week that are looking to end fairly flat. Being held up by big tech there are a lot of headwinds leaning many bearish but markets continue to move sideways, close to highs for the year. Joel is much more on the bullish side thinking investors are still under invested but not bailing on markets.
Jesse Felder points out the potential future pitfalls and risk for a downside rerating that many investors treating “Big Tech” as their new “Safe Haven” trade may be exposing themselves to. I had posted this earlier in the week, but feel it serves as a solid contrast to the message from this daily editorial with Joel.
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The Trouble With ‘The New Safety Trade’
Jesse Felder – The Felder Report – May 2, 2023
“There has been a lot of talk in recent months about the narrowness of the rally in stocks so far this year. It’s no secret that the majority of the gains for the index have come from just a handful of stocks while many smaller names have performed much more poorly in comparison. To wit, together Microsoft and Apple’s share of the the S&P 500 Index just rose to a new record high while the Russell Microcap Index just fell to a new multi-year low.”
“Some have explained the phenomenon by noting that investors now see Big Tech as the ‘new safety trade.’ People are looking for safety and comfort given the cross-currents in the market, and tech gives them plenty of ease, as JPMorgan sales trader Jack Atherton tells the Financial Times. That ease comes from the belief that Big Tech actually offers, in the words of Glenmede’s Jason Pride, “downside protection during more difficult times.”
“Investors crowding into these names better be right because they are clearly making a major bet that these companies’ financial performance will not only hold up through the economic “cross-currents” to come, it will actually benefit from them. How else can you explain that they are willing to pay 65-times aggregate free cash flow (less stock based compensation) for the five largest stocks in the Nasdaq (as of last year)?”
“Over the past decade, their average valuation has been less than half the current level. So it would appear there is a very real risk that if the economy enters recession and these companies are not immune to its effects their collective valuation could revert to some degree or another, a process that could prove inordinately painful given the extreme valuations they trade at today…”
https://thefelderreport.com/2023/05/02/the-trouble-with-the-new-safety-trade/
Overall, still a respectable green day in the portfolio here to close up the week. Some of the PM producers and royalty companies, and diversification into the uranium, energy metals, and nat gas stocks helped carry the day into the positive. Some of the PM juniors are still dragging, but with gold and silver down today on the stronger then expected jobs number and rising interest rates, not a surprise to see many of them in the red this Friday.
Wishing everyone a wonderful weekend!