Greetings from Greece. My colleagues, Elias and Toby, have been writing the QTs this week while my wife and I are vacationing in Crete and Santorini. The weather, food, and people are great. In Crete, we visited the ruins of the Palace at Knossos. It was the ceremonial and political center of the Minoan civilization and culture that thrived during the Bronze Age. We learned that for fun, Minoans enjoyed bull jumping. In Greek mythology, Zeus was born in Crete. In addition, the Minotaur, who was half human and half bull, was confined by King Minos of Crete to dwell in the Labyrinth, designed by the architect Daedalus and his son Icarus. Icarus died by flying too close to the sun, which melted his wax wings.
(1) Markets. Today’s bull market in stocks has raised concerns that investors are flying too close to the sun and are in for a meltdown like Icarus’. We try not to be bullheaded, but we think that the earnings-led bull market will continue at least through the end of the decade. We think that June’s Swoon so far is more likely to be a rotation than a correction (chart). The S&P 500 bounced off its 50-day moving average today on news that President Donald Trump decided to postpone a planned attack on Iran. He subsequently said that a deal to end the war is imminent. Iran has yet to confirm this.
While the Magnificent-7 companies mostly continue to deliver fabulous earnings momentum (FEMO), investors aren't sure that they can sustain it given their enormous AI capex. In addition, there is lots of uncertainty about the AI investments’ payoff. Recently, LLM providers have had to lower the prices of their "tokens" in response to pushback by business users at the high cost of using AI tools.
In recent weeks, the Impressive-493 collectively have outperformed the Magnificent-7 stocks (chart). The latter might also be getting hit by profit-taking by investors participating in tomorrow's gigantic SpaceX IPO.
The MAGS ETF is down 2.6% ytd, while the XMAGS is up 9.4% (chart).
Another reason we don't expect the current June Swoon to turn into a correction is that our two favorite Bull-Bear Ratios remain subdued (chart). We tend to get concerned when there are too many bulls.
By the way, a couple of days ago, when the price of gold dropped below its 200-day moving average around $4,500, we concluded that it was likely to fall further and find support at $4,000 (chart). We still think that, expecting it to bounce off that level and resume the bull market that began in late 2022. We would have to seriously reconsider our current stance should the price fall below $4,000.
