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Analysts' Insights

Analysts' Insights

Friday was a PIVOTAL turning point for Stocks & Crypto!

1) Consensus: Wallstreet commentators have warned for several quarters that a) inflation would be sticky & b) the US economy would enter a recession in 2023. SP500 +11%, Nasdaq +27% & Bitcoin +62% have been rallying YtD nevertheless.

2) Economic facts: Last Friday's US employment report surprised above expectations for 14 consecutive times, another sign that market forecasters were too bearish and that the US economy is far from entering a recession. As a result, economy-sensitive stocks (SP500 and Russell 2000) outperformed tech stocks. This could be the START of the outperformance of Financials > Tech stocks as the domestic economy starts to pick up.

3) Trading call: Our MAJOR trading call is to switch out of tech (we have been bullish since Dec 2022) and move into financials. The Fed has finished its rate hiking cycle & investors could allocate into this laggard sector. While the odds for tech to rally are still strong (MSFT +10% next 3 months according to our model), the underweighted sectors could see the most significant rally.

4) Positioning: SP500 speculative futures positions are at multi-decade lows (shorts), a sign that many traders bought into the FALSE narrative that the U.S. debt ceiling matters, inflation would remain elevated and the U.S. economy would enter a recession. None of those narratives appear to occur, forcing those short positions to be covered and SQUEEZING the market higher.

5) Firepower: Data from Ultra-High-Net-Worth shows that their cash allocation has increased from 23% to 34% and their cautious stance has resulted in a significant underperformance year-to-date. Our tech-focused portfolio is up +40% YtD and the next leg higher could be driven by financials.

6) Convexity: Volatility = Risk and the volatility index (VIX) has declined to multi-year lows at 15%, supporting portfolio managers to deploy more capital and increase their net LONG positions. Buying stocks & hedging the risk with puts suddenly only costs half as much.

7) Seasonality: Equity markets are also entering the quieter summer months, where natural buying (from pension funds etc.) dominates & pushes the market higher. The last time the Nasdaq declined in July was in 2007.

8) Consumer spending: Glancing at airline ticket prices this summer, everybody will release that consumer spending remains extraordinarily strong & despite a shift higher in living costs, consumers still have the cash level, which supports the economy.

9) Politics: Trump is likely claiming the Republican nomination for the 2024 election. As his chances to be elected are pretty high, the market will speculate that SEC Chair Gensler will not become Treasury Secretary, and a new SEC Chair could be more crypto-friendly.

10) Crypto: The more robust stock market should also benefit crypto, & we think Bitcoin could rally into year-end. Our Dec 2023 price target of 45,000 remains firm.

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