New All Time Lie
Bulls are now hanging their hat on the "soft landing" narrative which has become consensus across Wall Street. The theory goes that the economy will slow just enough to allow the Fed to come in and juice markets higher. Of course if bulls are wrong, then soft landing turns to hard landing and the Fed chases the market all the way down to mass bankruptcy. The stakes are high. It helps that end of summer volumes and volatility have collapsed allowing the algos to keep stocks pinned near all time highs amid relentless sector churn taking place below the surface. Recall that the Tech/AI trade peaked and imploded in July which is when the soft landing rotation took hold. Normally, rate cuts and deflation are beneficial to Tech stocks, but bulls have invented this specious narrative that the weakening economy will benefit cyclicals more than the massively overvalued Tech stocks. The part they ignore is the fact that safe haven recession stocks continue to lead the market.
Today is the 11th up day in a row for the S&P 500 low volatility ETF. Which is a record going back 15 years since inception. One could argue that these stocks are running out of gas.
Which gets us to the leading major index which also happens to be the most widely followed index of the market by the general public - the Dow Jones Industrial Average (DJIA).
This is the exact same pattern that occurred in 2021:
First the Nasdaq peaked and then the Dow peaked about six weeks later.
I would point out that at no point in this AI stock rally that began in 2022 have the Transports confirmed the Industrials, which is a continued violation of Dow Theory. Dow Theory posits that both the Industrials and Transports must make new highs or the rally is a headfake. In this case the Transports have not confirmed the all time high which implies that the economy is lagging the stock market.
The Dow Industrials benefited from the AI trade and since that imploded the DJIA has benefited from the "Low vol" safe haven trade. Ironically, at no time have the cyclical Transports confirmed the bullish hypothesis that underlies the Dow's new high.
Which gets us to Tech stocks and the most important stock in the world which reports Wednesday after the close. Recall that all of the major cloud service providers - Microsoft, Google and Amazon imploded during earnings because they were spending too much on Nvidia hardware with no ROI. Which means that Nvidia is turning into the sole beneficiary of the AI trade.
"Analysts expect a fourth straight quarter of triple-digit growth, but at a reduced pace of 112% to $28.7 billion, according to LSEG. From here, year-over-year comparisons get much tougher, and growth is expected to slow in each of the next six quarters"
I predict that no money manager with an IQ more than five will be buying this stock after Wednesday. Whether they beat or not.
Like last year:
