Is Tech Too High?

Original Publish Date: August 24, 2020

Since the March lows, the overall market has roared back with a massive V-shaped recovery. The DJIA has bounced 52%, with the S&P 500 up 53% – both within spitting distance of the year’s open. However, when you look at the majority of the market movers, they consolidate solidly around tech. The members of the “Trillionaire’s Club” have gone parabolic with AAPL up more than 69% YTD, AMZN 74%, and MSFT 33%. Other highflying tickers such as FB, NFLX, AMD, and QCOM are surging towards new highs on nearly a weekly basis. With the major indexes brushing off record-setting unemployment numbers, spikes in COVID-19 cases, and civil unrest around the country – paired with hoards of new money flowing into the already crowded tech sector – it’s hard not to say things will catch up with us sooner rather than later. We see profit-taking potential on many of this year’s record-setting list edging closer with every passing day, which could pressure the market into a brief correction period. While it is impossible to say when such an event will unfold, it seems likely that we could see some rotations into under recovered sectors such as the financials, consumer discretionary, and more cyclical areas such as Industrials and Materials. However, it is unlikely that the global environment would position itself in such a way to allow these sectors to outperform the market on a long term basis. As such, we will be taking only modest positions, while scaling down our tech positions to increase our cash holdings.

For our forward look, there are some bright spots on the horizon, such as the continued reopening of the country alongside multiple vaccine potentials. However, we believe that most investors have yet to consider the possibility of a Democratic sweep come this November. There are two sides to this coin. Corporate taxes and upper individual tax brackets would undoubtedly increase, which is rarely a good thing for business. However, a Democrat-controlled White House and Congress would almost certainly lead to more infrastructure development.

Furthermore, the reopening of schools could cause a surge of virus cases, which could cause parts of the country to shut down again, or at the very least, prohibit the continued reopening trajectory. As such, we believe that caution is warranted. Areas such as healthcare could be poised to outperform the overall market. We have been slowly accumulating select positions for such an event. In total, our portfolio is tending towards caution, but it does not reflect the view that we will see an extended pullback past 10-12 percent for more than a quarter or two.

Disclosure: I am/we are currently long on Technology, Healthcare, and Consumer Discretionary sectors.

This article expresses my own opinions. I am not receiving compensation for this article – other than from Honey Investments. I/we have no business relationship with any companies whose stock is mentioned above.

Market Correction a Possibility
Equal Weight on Tech
Increasing our Healthcare and Financial Exposure

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Is Tech Too High?

Original Publish Date: August 24, 2020

Since the March lows, the overall market has roared back with a massive V-shaped recovery. The DJIA has bounced 52%, with the S&P 500 up 53% – both within spitting distance of the year’s open. However, when you look at the majority of the market movers, they consolidate solidly around tech. The members of the “Trillionaire’s Club” have gone parabolic with AAPL up more than 69% YTD, AMZN 74%, and MSFT 33%. Other highflying tickers such as FB, NFLX, AMD, and QCOM are surging towards new highs on nearly a weekly basis. With the major indexes brushing off record-setting unemployment numbers, spikes in COVID-19 cases, and civil unrest around the country – paired with hoards of new money flowing into the already crowded tech sector – it’s hard not to say things will catch up with us sooner rather than later. We see profit-taking potential on many of this year’s record-setting list edging closer with every passing day, which could pressure the market into a brief correction period. While it is impossible to say when such an event will unfold, it seems likely that we could see some rotations into under recovered sectors such as the financials, consumer discretionary, and more cyclical areas such as Industrials and Materials. However, it is unlikely that the global environment would position itself in such a way to allow these sectors to outperform the market on a long term basis. As such, we will be taking only modest positions, while scaling down our tech positions to increase our cash holdings.

For our forward look, there are some bright spots on the horizon, such as the continued reopening of the country alongside multiple vaccine potentials. However, we believe that most investors have yet to consider the possibility of a Democratic sweep come this November. There are two sides to this coin. Corporate taxes and upper individual tax brackets would undoubtedly increase, which is rarely a good thing for business. However, a Democrat-controlled White House and Congress would almost certainly lead to more infrastructure development.

Furthermore, the reopening of schools could cause a surge of virus cases, which could cause parts of the country to shut down again, or at the very least, prohibit the continued reopening trajectory. As such, we believe that caution is warranted. Areas such as healthcare could be poised to outperform the overall market. We have been slowly accumulating select positions for such an event. In total, our portfolio is tending towards caution, but it does not reflect the view that we will see an extended pullback past 10-12 percent for more than a quarter or two.

Disclosure: I am/we are currently long on Technology, Healthcare, and Consumer Discretionary sectors.

This article expresses my own opinions. I am not receiving compensation for this article – other than from Honey Investments. I/we have no business relationship with any companies whose stock is mentioned above.

Market Correction a Possibility
Equal Weight on Tech
Increasing our Healthcare and Financial Exposure

Ready to Take Your Portfolio Return to the Next Level?

Monumental Growth

It only takes a few minutes to get started!

We’ve returned more than 14,000% to investors since inception April 2018.

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