Monday, April 24, 2023

Morning Note: Time Will Tell on Tech

Why own tech stocks right here? Or, perhaps a better question, why have tech stocks rallied so much this year?

I'm thinking the answer is simple; tech stocks, all else equal, do well in a low/lowering interest rate environment... Plus, they got literally hammered last year and, thus, at first blush -- and in that the group is still down 16% from the pre-bear peak -- folks think they're cheap.

As for tech's impact on the broader market; the S&P 500's impressive year-to-date performance (up 7.7%), becomes a mere 2.6% if we take out a mere 5 positions... Specifically, Apple, Microsoft, Nvidia, Meta and Amazon.

As for the notion that tech is cheap because it's still down a bunch since its Jan '22 all time high, well, the sector presently trades in the 82nd percentile of its 10-yr P/E ratio range... I.e., they remain richly-priced, historically-speaking!

As for the notion that tech's a screaming buy because interest rates are coming down (i.e., because inflation -- and the economy -- is weakening), well, that's like saying tech stocks should be treated like bond investments, as opposed to companies with earnings generated by things like consumer spending, demand for chips, corporate ad spending and so on -- i.e., things that go down when the economy goes down. 

Hence, me featuring the tech-heavy Nasdaq 100 Index in recent technical analyses.

Now, all that said, beyond what we see as the utter weakness of the bullish arguments outlined above, the bulls do have a legitimate reason to be optimistic: Tech companies, as you've no doubt caught in the headlines, have been cutting expenses (labor expenses, alas, in particular)... A case can be made that they've slashed enough to weather what's to come -- to, in essence, preserve their bottom lines against headwinds they, given the expense slashing, indeed see coming.

Time will tell...

Asian stocks leaned red overnight, with 9 of the 16 markets we track closing lower.

Europe, on the other hand, is leaning green so far this morning, with 8 of the 19 bourses we follow trading up as I type.

US equity averages are mixed to start the session: Dow up 24 points (0.07%), SP500 down 0.06%, SP500 Equal Weight up 0.06%, Nasdaq 100 down 0.41%, Nasdaq Comp down 0.42%, Russell 2000 up 0.15%.

The VIX sits at 17.19 up 2.50%.

Oil futures are up 0.90%, gold's up 0.07%, silver's up 0.31%, copper futures are down 0.32% and the ag complex (DBA) is up 0.53%.

The 10-year treasury is up (yield down) and the dollar is down 0.40%.

Among our 37 core positions (excluding options hedges, cash and money market funds), 22 -- led by Albemarle, OIH (oil services companies), TLT (long-term treasuries), EWZ (Brazil equities) and XLE (energy stocks) -- are in the green so far this morning... The losers are being led lower by AT&T, AMD, EZA (South African equities), DBB (base metals futures) and HACK (cyber security stocks).

"...if you approach each trade by thinking of what you can lose rather than what you can win, then your success as a trader should be enduring and prosperous." --Spotgamma

Have a great day!

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