Hi YXI friends,
I currently don’t have a very strong, convincing read on equities.
We were pretty accurate in not expecting a big crash in Q1. But since mid-April, stocks have firmly decoupled from the oil and Treasury markets.
The two biggest supporting legs of this rally so far are Earnings growth and AI narrative. The former remains robust, meaning that the S&P valuation is above the historical average but not ridiculously so. The latter has helped Semis moon, but is much more fickle.
One cannot deny that risk appetite is high relative to the macro uncertainties.
However, it remains difficult to see a parabolic path (which is always hard to predict) without a pullback. The leadership is pretty narrow in this equities rally, with the focus on large-cap tech.
Personally, I am in an observational mode. I am happy to see whichever way the market resolves and take on board the new lesson.
I also want to paraphrase two different angles from other analysts here:
Tom Lee thinks we'll see a big drawdown next as the market tests the new Fed Chair. Historically, the market wobbled when a new Chair was appointed.
Robert Balan reads from the options tea leaves that dealers are buyers into mid-May, after which macro could play a big role again.
Housekeeping: The more I think about the future of this service, the more obvious it becomes that we should move into a more focused direction towards the AI theme, which stretches beyond just semis and data centres.
I am building this universe of companies to cover right now. It will take me some time to calibrate it with our models.
I also want to start focusing more on the longer-term direction, while our macro analysis and ML models guide us through short-term volatility. We will lean on the fundamentals much more. Once I’m comfortable with coverage, I want to start creating a portfolio service (all sitting within the current service), which many YXI friends have requested.
When the AI universe is formally launched, we will scale back the macro coverage (perhaps to Tuesday write-up + Friday video). We also won’t spend as much time on the Mag-7s to make room for other stocks.
No doubt a lot of work ahead of us. Like A LOT a lot. But that’s what’s exciting.
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