Financials Matter

"It's Not Just About Finance"

Overcrowded, Tired, and Out of Gas

 

Last week we said the market is looking tired referring to the fact that the major indexes (DOW, S&P, NASDAQ, RUSSEL 2,000) were pulling back from their yearly highs.

More importantly, the DOW never got back to it’s high of 29,586 back in January.

The reason it lagged is because there’s not a large exposure to the tech market in the DOW 30.

On the flip side, the NASDAQ and S&P are heavily weighted to tech stocks henceforth their rapid recovery from the CovidCrash and rebound to new highs reached in July/August.

However, the current position of the tech sector is reminiscent of late 1999-2000 where tech was The Most Overcrowded Trade in History.

We all remember how that worked out.

20 years later, the tech sector has, once again, joined the ranks as the most overcrowded trade in history.

Ironically (or NOT) according to Bank of America’s global fund manager survey, most investors believe the “trade” – specifically the tech sector – has gotten even more crowded…and this survey was taken in JULY.

What’s strange about this observation is that most investors still love the trade they fear the most.

This is a reminder of the old Wall Street adage, “the markets move in the direction that frustrates the most people.”

We believe that not only is this market (tech stocks) overcrowded, but it’s also tired and running out of gas.

Take everyone’s darling Apple, for example.

It’s down 20% from its recent high.

Facebook is down 19%.

Google is down over 18%.

And on and on.

58% of the survey respondents said we’re in a new bull market while 37%, in contrast, think we’re in a recession.

In other words, more investors think the recession is over than think the recession is still on.

So, who’s right?

Time will tell.

In the meantime, we’ll remind you that we’ve been saying for several months to “raise cash” and be patient in this market.

Why?

You can’t buy stocks at a discount if you don’t have any cash available.

See what specific sectors we recommend in our September newsletter.

 

It’s Not Just About Finance.

 

 

 

 

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