During yesterday’s session, hedge funds and large investors began releasing their latest holdings. It turns out even the dourest in the bunch are loading up on Technology (XLK), particularly anything involved with Artificial Intelligence (AI). 

Alphabet (GOOG) was heavily bought, including a $1.2 billion position by Bill Ackman, Founder and CEO of Pershing Capital Square Capital Management. It looks like everyone bought Meta Platforms (META), Microsoft (MSFT), and most bought Amazon (AMZN).

Michael Burry, an American Hedge Fund Manager, bought regional banks that have been slammed. Not large stakes, but it made a statement and helped move the needle for Financials (XLF).

Key Charts

It might feel like it’s too late to get exposure to Technology. But as filings from the Masters of the Universe show, when buying for the longer-term, you get aggressive at key points, including major breakouts. The S&P Tech Sector is breaking through a pivotal resistance point. Through this point, I think it marches to form a double top at the all-time high. Not a straight line and certainly not a smooth ride, but it looks more likely now.

I’m also spying on small caps. The Russell 2000 was the best-performing large equity index, beating the S&P 500 this month. Hey, it’s a small morale victory, but it could become much more.

Contrarian Move

According to the Wall Street Journal, institutions have pulled $333.9 billion from equities in the past 12 months, and individual investors have pulled $28.0 billion.

This kind of pessimism makes me very excited. But it is a lot of money, which means pressure on stocks. However, once it stops, at some point it will return, and my bet is the money chases names higher than where they are currently being sold.

Portfolio Approach

There are no changes to our sector weights in our Hotline Model Portfolio this morning.

Today’s Session

The lost art of listening has become even more challenging as the messages posed as truth have become increasingly sales pitches.  It’s a serious issue for society, including investors.

The good news for those willing to make the effort is you can go to the source rather than nodding in mindless agreement to the experts. 

Remember, we are prone to nodding in agreement with opinions and expert analysis when it dovetails with our own self-interest and beliefs.

This is a serious issue for me because I am privileged to know and interview some of the best experts on a variety of topics.  But I always go back to the data to try to find the truth.  Sometimes it corroborates what experts are saying, but lately, it has been completely different.

Case in point – how strong is the economy?  How strong is the consumer? How expensive are stocks?

The overarching message from the experts is the economy and consumers are strong, but somehow the stock market should be a lot lower.  Some of that thinking is based on assumptions about what the Federal Reserve will do next.

Some of that thinking is also based on positions of ‘fact’ established by the experts and the inability of those same experts to admit when they are wrong, even when they have been wrong,

In the past 24 hours, we’ve seen a bevy of economic data and corporate news that points to an economy that could be on the verge of imploding.  On the other end of the spectrum, we heard from a top official at the Federal Reserve that the base plan is more hikes and no cuts until maybe next year.

As Atlanta Fed President Bostic was priming the pump for maybe more hikes, there were these headlines.

US Households show signs of stress and new delinquencies rise.

Fed wage growth tracker implodes.

Empire Fed Manufacturing Survey Collapsed in April - Biggest Drop Ever (Ex-COVID).

Home Depot posts worst revenue miss in about 20 years, lowers forecast.

Dow Jones Futures Fall After Retail Sales.

It’s a lot of noise, but I suspect the market will stop listening to the Fed and other experts calling for more rate hikes.

Retail Sales

Retail sales didn’t snap back as much as the street expected, as April grew +0.4% from March against the consensus of +0.8%.

Internet sales were solid and general merchandise held up, but furniture, electronics, gasoline, clothing, and sporting goods were lower.

I’m seeing more reasons for the Fed to pause, but if there must be more of a shakeout, then so be it.  By the way, the debt ceiling drama will be resolved, but anxiety is growing.

Comments

I agree, there are all sorts of ECONOMIC reasons to pause. That being said, the reignition of high inflation is a larger risk to the economy and the nation than rising unemployment caused by recession. Charles Haselberger on 5/16/2023 1:12:01 PM

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