Momentum Monday – Inflation in Focus

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Markets are cyclical. It feels like it’s 2006 all over again. Crocs is at all-time highs and basic material stocks are one of the hottest assets to own right now. If NFTs, doge coin and other cryptos didn’t exist, people would be talking about steel stocks all day long. 

 Lumber is up 130% year-to-date, lean hogs are up 60%, corn is up 50%. The list goes on and on. Inflation expectations continue to rise and as we all know very well, expectations can impact the reality. Soros defines that as reflexivity. The Fed keeps saying that inflation is not a threat right now but at some point (usually when it’s too late), the market action will force its hand. There’s a reason the market is called a leading indicator. 

The S&P 500 and the Dow Jones closed the week at another new all-time high. In the meantime, many former tech and biotech darlings are severely underperforming. Some are even down 40-50% from their 52-week highs. If you haven’t invested or traded before 2009, you have never seen a market like this. Tech was the undisputed leader for more than a decade while commodities and emerging markets were perennial dogs with a bad reputation. It seems the tables have turned this year. There is a clear paradigm shift. And while it might not mean that tech stocks will be dogs for the next few years, the price action alludes that the market might not be willing to pay 30-50x Sales for Saas companies anymore just because of their impressive sales growth. 

All the hot money from tech has moved into crypto now. There are over 5000 different cryptocurrencies right now and more popping up every day, so it’s funny to think that they are a hedge against the Fed and deficits. Bitcoin is the OG and it’s here to stay as a rare asset. 99.9% of the altcoins though are worthless or will become so at some point, so treat them as pure speculation and have an exit strategy. In the meantime, I don’t see why Ethereum’s market cannot exceed Bitcoin’s at some point in the foreseeable future. All interesting apps and use cases are built on Ethereum right now. 

Back to the boring, old stock market. The leaders remain the same. They are all related to rising inflation expectations (metals, oil, gold, silver, potash) or the recovery trade (retailers, car markets, infrastructure, auto parts, etc.). Semis are also trying to bounce. If SMH retakes its 20dEMA, we might see some hot action in AMAT, LRCX, NVDA, etc. 

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