Stocks peak about every 36 years, most recently in 1929, 1965, and 2000. This 36 year cycle can be traced all the way back to the earliest eras in recorded human history, back to Pythagoras and Plato and the Axial Age around 600BC. After each peak comes a period of decline (punctuated by bear market rallies) that typically lasts 16 years or so. Then, with the excesses of the prior bull period wrung out and investors most depressed, the next 20-year run to the next market top can begin. Since 1927, the markets have spent 83% of the time at or within 10% of all-time highs.
Howdy, Bull-Riders:
As I expected, Nvidia (NVDA) reported a strong January quarter after the close yesterday and guided the April quarter above estimates. The stock was up $110.66 or 16.4% today to new record highs as Wall Street fell all over themselves to raise their ratings and target prices. Nvidia is a great company that I first recommended in 2000 in the California Technology Stock Letter and still recommend today in Boomberg. CEO Jensen Huang told me in 2000 that Nvidia would be a bigger company than Intel (another Boomberg recommendation) and he was right.
It's a bad idea to bet against Jensen.
But. Carefully listening to the conference call (AUDIO HERE) and reading the transcript (TRANSCRIPT HERE) tells me that Nvidia is successfully accelerating contracted production of their AI processors, so supply is going to catch up with demand. That means the quarterly revenue beats and estimate raises are coming to an end. And that means Wall Street is setting up one of their classic rug pulls.
There's been a real pile-on in tech over the last year:
And sentiment has moved from Greed to Extreme Greed:
h/t CNN
The rug pull will not necessarily be on Nvidia, which is genuinely a great company that all the investment pros have to own. But Nvidia's beat and raise drove the S&P 500 up 2.1% today to a record close, even though most of the S&P companies don't make AI chips or software, and in many cases are more threatened than benefited by the AI revolution.
Given that, and given that I've held two very different outlooks from Wall Street for quite a while, namely (1) High – but not higher – for Longer on the Fed funds rate, and (2) that there will be a recession this year, I think it's time to buy some portfolio protection. I've been thinking about this for a while but the fractal dimension is screaming that a correction is imminent (see below), so now is the time.
First, some caveats. Portfolio protection is insurance, and the cost of it is the insurance premium. Just like you don't want your house to burn down so you can collect on your fire insurance, or your car to be wrecked, you don't want to make money on portfolio insurance. It's there to let you stay invested in this secular bull market that won't hit a major top until 2036.
Second, you do not want to make a huge bet on a down market. This is not a speculation. Consider the cost of portfolio insurance as an expense – gone money you never will see again.
Third, there are many ways to protect a portfolio – index puts, VIX puts, reverse funds, and so on. There's no “right” way and some of you might want to try a mix of things.
Recession Watch
Retail sales plunged by 0.8% month-over-month in January versus the -0.1% estimate, the sharpest drop since March 2023. Control-group sales (used to calculate GDP) fell 0.4%, the first decline in 11 months.
h/t Daily Chartbook
Market Outlook
The S&P 500 added 1.1% since last Thursday to new record highs today. The Index is up/down 6.7% year-to-date. The Nasdaq Composite gained 0.9% after yesterday's 3.0% jump, its best day in more than a year and pressing near a record-high for the first time since November 2021. It is up 6.9% for the year. The SPDR S&P Biotech Exchange-Traded Fund (XBI) climbed 0.9% and is up 5.4% year-to-date. The small-cap Russell 2000 dropped 2.3% and is back in negative territory for the year, down 0.7%. Even the venerable Dow Jones Industrial Average banked a 457-point gain yesterday. It was a global party: Japan's Nikkei 225 index finally beat a record that had stood since 1989 and the pan-European Stoxx 600 hit a fresh all-time intraday high.
The excellent Ed Yardeni reiterated his forecast for the S&P 500 Index of 5400 at year-end 2024, 6000 in 2025, and initiated 6500 in 2026.
h/t @yardeni
The fractal dimension is ridiculously low, meaning a consolidation - sideways for weeks or a serious drop – is overdue.
Gold recovered from a brief dip below $2,000 that probably cements that level in as solid support. The fractal dimension consolidation continues.
Bitcoin traded over $51,500 this week, the highest level since 2021. The ten bitcoin ETFs netted $2.27 billion last week after the ongoing GBTC bleed.
h/t @EricBalchunas
Bitcoin rallies have averaged 32% in the eight weeks leading up to the reward halving, according to 10X Research. Bitcoin's fourth halving is due on April 19 and a 32% gain would put it near its all-time high of $68,790. Also, bitcoin's daily relative strength index (RSI) has crossed above 80 for the first time since December. 12 out of 14 such previous RSI signals presaged accelerated uptrends, producing an average gain of 54% in the following 60 days. Bitcoin traded at $48,294 when the last signal was triggered, and if it increases 54% it will continue this rally to $74,600.
Coming Events
Tuesday, February 27
Short Interest - After the close
Wednesday, February 28
December Quarter GDP</b> - 8:30am – Second estimate
Thursday, February 29
PCE – Personal Consumer Expenditures Index - 8:30am
Golden Age Portfolio Update
This was another good week for the portfolio as it added 0.8% to another all-time high. We're now up 14.2% in 2024 with much more to come. Let's dig in...
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Your learning about RFK Jr. Editor, (movie is free during February)
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