Resumo do Relatório
TPW Advisory Friday Musings: Rotation
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TV prep is always helpful, especially when it’s for a Friday hit as it was today. Last week was mentally draining; we published the May Monthly, updated our two model portfolios, our Global Multi Asset (GMA) flagship and our TPW 20 thematic model, wrote the accompanying client notes and finished up with last Friday’s Musings. It’s often the case that some key insights from that work only make themselves apparent over time.
Such was the case yesterday when much of what is written below came to me, as often happens, when I was at the gym. Returning from the gym, I had an email from the BTV producers asking if I could come on this morning. Perfecto! I wrote up my thoughts and sent them over. Then this morning around 8, I got an email with a topic change which allowed me to write up the 2nd half of this Musings. So, thanks to the good folks at BTV for helping write this Musings on rotation. The rotation to come: from US Big Tech to cyclicals & the rotation underway, from US led global equity to non US led global equity markets.
As we see it, the Fed & rates are on hold (last 6 month’s US inflation annualized = 3.3%), the debt limit is just another element of the Curtain of FUD (Fear, Uncertainty & Doubt) and the real Q is when, not if, the market rotation from Growth back to Cyclicals takes place.
Big Cap Tech is where all the $ is going because of AI and the margin expansion/moat it gives the big companies that can spend the required amounts on it. The set up is solid: big cap tech derated last yr., rate hike risk is now over and so it’s a VG hedge against recession which remains the consensus base case (recession = lower rates = higher tech stock prices). We agree with all that and have shifted considerable amount of US equity exposure into tech related growth including semiconductors which we see as the pick & shovel of the AI innovation cycle.
As a result, the spread between big tech and cyclicals – commodities has gotten very wide with BBG’s Commodity Index at a 16 month low & that’s what sets up the rotation which we think will be confirmed once we get through the debt ceiling drama (which we will – do we really want to show the world/China how feckless we are? Don’t think so) and come to the Fed meeting in less than a month.
At the June meeting, we expect the Fed to validate the on hold camp and the high nominal growth, no recession camp (the Middle Path we have been writing about for a year) by raising its 2023 and 2024 GDP estimates – note Q2 Atlanta Nowcast at 2.9%. This, in turn, will validate the rising 2H EPS estimates and positive forward corporate guidance that came out of Q1 BTE earnings seasons here and abroad. More importantly still, it will boost Cyclicals & Commodities which will allow S&P to break out & UP first to clear 4200 resistance (happening now – speed) which every technician has highlighted and thus will bring in $ and then 4300 which will mark the start of a new bull mkt (20% up off Oct low – QQQs already in its bull market and showing leadership with equal weight index up 17% ytd).
Jay Pelosky
Estrategista Global - TPW Advisory
Nova York, EUA
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