The Trump Trade Stalls

Last week when assessing the surge in markets - I offered examples of how market (sector) dynamics shifted. Adding to that theme - I was not overly surprised to read how institutional investors are putting money to work. For example, Bank of America Corp.’s monthly survey of global fund managers indicates that Trump's decisive win is perceived as a potential turning point for investment strategies. And whilst that could be true - it pays to look at history... what can we gauge from Trump 1.0 (and the impact on markets).

Time to be Greedy or Fearful?

Warren Buffett is famous for saying "be fearful when others are greedy; and be greedy when they are fearful". Today the Oracle of Omaha sits on a record $325B in cash - a record for Buffett - and over 30% of his entire portfolio. Investor enthusiasm today is wildly optimistic about future growth and earnings post the election result. And whilst surging prices are a sign of confidence - markets are also notoriously fickle...

Red Sweep Turbocharges the Market

Trump's decisive win last week has seen significant shifts in market sentiment. Markets are optimistic that Trump's tax cuts and deregulation will turbocharge growth. And they might. But what implications will Trump's policies mean for the US dollar, long-term bond yields and foreign trade? As investors, you need to evaluate both what is seen vs unseen. There will be both opportunities and challenges... however they will be very sector specific.

Real PCE & Wages Trend: Consumers Keep Spending

This week we received my preferred leading economic (and stock) indicator: real personal consumption expenditures (PCE). As a preface to this missive - as a long-term investor - our job is to carefully assess the risks. Part of that equation is knowing exactly where we are in the business cycle. For e.g., do you think we’re at the beginning or middle of an economic advance (with more to go)? Are we about to encounter a significant change in direction? If so, is that change for the better or for the worse?

Stocks Pause on ‘Less than Magnificent’ Earnings

October - synonymous for delivering market jolts - passed with barely a whimper. However, it was the market's first negative month since April. Are stocks losing their mojo? In short, large cap tech earnings from five of the 'Mag 7' were less than magnificent. Meta, Apple and Microsoft all dropped post earnings. Google managed a small 5% rise initially - but gave it all back. Amazon managed hold gains of ~3%. This post talk to what the market expects from the nearly $1 Trillion in AI capex... and how their patience could be starting to wane...

Decoding the Drop in Oil

Middle East tensions are rising. However, oil prices are dropping. Why? The Israeli missile attacks on Iran, while not entirely unforeseen, triggered a negative response in the oil market. Now this may seem curious... contrary to expectations of a price surge due to heightened geopolitical tensions, crude oil prices plunged ~5%. In short, market sentiment tends to prioritize economic supply and demand concerns over (short-term) geopolitical risks

Stocks Losing Momentum

Are stocks starting to lose momentum? This week saw the S&P 500 reverse course - its first losing week since early September. Could there be more to come? My answer is yes - perhaps as much as 7-10%. However, it's a question of timing. Irrespective, paying 22x forward earnings is a higher-risk bet.

The Bond Vigilantes Strike Back

Several weeks ago I suggested investors consider reducing their exposure to 10-year treasuries. At the time, the world's most important debt security was yielding around 3.80%. They would continue to fall to a near-term low of 3.60%. In this case, the timing was good as these yields have rallied some 60 bps in turn crushing bond prices. For example, EDV and TLT have dropped more than 10%. So why are 10-year yields rising in the face of Fed cuts? There's a good reason: term premium. Bond owners demand a premium if owning the debt of a fiscally irresponsible government. And this has major implications for investors...

Why Buffett’s Mentor Would Reduce Risk

I've been re-reading "The Intelligent Investor" by Benjamin Graham. Warren Buffett called it "by far the best book on investing ever written" - crediting Graham with laying the foundation for his entire investment philosophy. The book taught me three powerful lessons: (1) above all else, investing is about protecting your capital; (2) investors should strive to pursue adequate and sustainable gains; and (3) it requires overcoming self-defeating behaviors (e.g., fear, greed and bias). The lessons could not be more timely given today's excessive valuations.

Not All Consumers Are Spending

Never underestimate the U.S. consumers want to spend. Well some of them at least. Last month's retail figures exceeded expectations - up 1.7% YoY in nominal terms (not adjusted for inflation). But here's the important point - these are nominal sales and only one month of data. One month is not overly helpful. When averaged over one quarter (which helps remove noise) - adjusted for inflation ( real terms) - and assessing the year-over-year change - growth is negative. And they have been negative in real terms for 9 straight quarters... this matters.

The Fiscal Tailwinds Helping Stocks

Will fewer rate cuts dampen the enthusiasm for stocks? It certainly hasn't to this point. And could higher bond yields impact stock valuations? So far the market is not bothered. These (and other) questions need to be weighed carefully with the S&P 500 trading ~21.5x forward earnings. And whilst the multiple is heavily skewed by the 'Mag 7' - 21.5x is far from cheap. What's more, from a historical perspective, paying a multiple above 20x offers investors a very low risk premium (e.g., with the risk free rate above 4.0%). But wait... what's to say stocks cannot rise further? We'll explore why they can...

The Inflation Puzzle: ‘Services’ Remain Sticky

In a perfect world, inflation should be boring. Boring is good. However, when you inject an additional $6+ Trillion into the economy with far fewer goods being produced, inflation becomes a story. Last month's inflation report showed headline (and core) CPI ticked higher. However, what caught my eye was "supercore" inflation - something the Fed says is a good predictor of future prices. Suerpcore is services inflation less shelter. This was up 4.4% YoY - also moving higher. The reason: pressures with wage growth - which remains around 4.7% YoY